ardly:
I thought the the original was clear. The best projects use a single microprocessor and it's (the microprocessor) capabilities are enhanced by external chips.
AWOL:
sp. "its capabilities"
Knowing that it's is a contraction for 'it is or it has' and its is a 'possessive case', the original sentence may take the following form
"The best projects often use a microcontroller with external chips to enhance and complement its (microcontroller) capabilities."