Let's say you have two esrogim. One is beautiful, which is preferred, for hiddur mitzvah. However, it might come from a tree which was grafted, so its kashrus is questionable.
Your other esrog is plain looking, but is unquestionably kosher. The obvius thing to do is to take both, but R' Chaim's question is which one should be take first.
He says to take the nicer one first, with the following reasoning:
If the first (nicer) one is indeed kosher, you've done the mitzvah b'hiddur, in the best possible way. Taking the second esrog is unnecessary, but harmless.
If the first one was not kosher, there was no harm in taking it (if the second one was taken immediately after the first, presumably the brachah can be applied to the second one, and there's no hefsek), and you are yotzei the mitzvah with the second.
If, however you first take the one with impeccable "yichus" (definitely not grafted), you are yotzei the mitzvah right away, and the mitzvah can only be done once (per day). Taking the nicer one afterward has no benefit; according to R' Chaim, you can't add hiddur mitzvah to a mitzvah which you were already yotzei.