Pileup is a phenomenon that is inherent to CCD detectors, such as
  those that comprise the ACIS instrument on-board Chandra, which
  "under-sample" the mirror point spread function (PSF).  Simply put,
  it occurs whenever two or more photons are detected as a single
  event, and thus it represents a loss of information from these
  events.  The degree to which this information can be "recovered" is
  described below.  Any corrections, however, are necessarily
  imperfect.  Thus, it is often desirable to choose instrumental
  set-ups that minimize the occurrence of pileup.   
  The likelihood of pileup occurring is significant whenever source
  flux levels are high enough such that there is a reasonable
  probability of two or more photons arriving within the same detector
  region within a single ACIS frame integration time (or CCD row
  readout time, for continuous clocking mode).  The charge from a
  single photon event is typically read out from a 3x3 pixel island;
  therefore, the relevant "detector region" referred to above is
  larger than a single pixel.  Charge clouds from neighboring events
  can overlap and cause events centered several pixels away from each
  other to become piled; see Davis 2001 (ApJ, 562, 575) for a more
  thorough description.  
  The detected energy of a piled event is approximately equal to the
  sum of the energies of the individual photon events of which it
  is comprised.  If the summed energy of the piled event       exceeds
  the on-board spacecraft threshold (typically 15 keV), it is rejected
  by the spacecraft software.  For sufficiently bright sources, this
  can lead to a visible "hole" in the source image.  This is because
  the count rate is sufficiently high that most piled events at the
  center of the PSF exceed the threshold energy and/or are assigned
  bad grades, so they are filtered out in data processing.
  Piled events also suffer from "grade migration". All events detected
  by ACIS are assigned grades based upon the shape of their charge
  cloud distributions in a 3x3 pixel island. These grades are used to
  determine whether the detected event is from a real photon or from a
  background event, such as a cosmic ray hit.  As the number of photon
  events making up a piled event increases, it is more and more likely
  that the grade assigned to this piled event will "migrate" to a
  value inconsistent with a real photon.  The piled event thus will be
  rejected either by spacecraft software or during subsequent analysis
  on the ground.  This effect of grade migration also contributes to
  the detection hole described above.
  As a simple empirical description of this process of grade
  migration, one can assign a probability, alpha, that for each photon
  event beyond the first, the piled event retains a grade consistent
  with a real photon.  Thus, in this simple model, the probability
  that a piled event is retained as a "real photon" is
  alpha^(N-1), where N is the number of photons comprising
  the piled event.  It is very important to note here that this is an
  empirical description of grade migration that has been found useful
  in some situations.  As such, alpha is an uncalibrated quantity, and
  is likely unsuited for some applications.  Grade migration is a
  complex phenomenon, which in reality will depend upon details of the
  detector, the incident spectrum, etc.  We have found, however, that
  within the confines of our current understanding of the physics and
  calibration of the detector, more complex grade migration schemes
  are not yet warranted.  
  There is one pileup model available in Sherpa: JDPILEUP, developed
  by John Davis at MIT. The pileup model does not work for pileup in
  dispersed spectra. Rather, the model was designed for imaging
  pileup, including pileup by the gratings in zeroth order. See "ahelp
  jdpileup" for more information on this model.
  The most complete resource on pileup in Chandra data is the Chandra ABC Guide to Pileup; the information in this help file was
  taken from that manual.  Further technical details are available in
  the paper "Event Pileup in Charge Coupled Devices" by J. E. Davis (2001, ApJ, 562, 575).
 For help with pileup analysis in CIAO, see the Fitting Spectral Data: Using A Pileup Model thread.  There is also the comparison of the pileup correction in ISIS, Sherpa, and XSPEC webpage.