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."
Yes, that is the way I understood the original.
Because 'projects' is plural and 'micronctroller' is singular there is no ambiguity that "its capabilities" means the microcontrollers capapbilities.
If both are plural you get;
"The best projects often use microcontrollers with external chips to enhance and complement their capabilities."
Which could be read as
"The best projects often use microcontrollers (with external chips) to enhance and complement their capabilities." or
"The best projects often use microcontrollers (with external chips to enhance and complement their capabilities)."
if that makes sense.