Being from San Diego, I'll heard the term "cholo" quite a few times, but I never knew it dated back so far.
The term's use is first recorded in a Peruvian book published in 1609 and 1616, the Comentarios Reales de los Incas by Inca Garcilaso de la Vega. He writes (in Spanish) "The child of a Black male and an Indian female, or of an Indian male and Black female, they call mulato and mulata. The children of these they call cholo. Cholo is a word from the Windward Islands; it means dog, not of the purebred variety, but of very disreputable origin; and the Spaniards use it for insult and vituperation".
The was some cholos in my High School and I did see initiation fight where the gang beats the crap out of a new member, but nothing too scary (this was San Diego, not L.A.). I also remember one one guy named Chewy. You didn't mess with Chewy.