I have a small Cape Cod built upon a cinderblock foundation. The previous owners used what looks like mortar or some other material to cover the block foundation on the outside to give it a smooth appearance. Now that mortar-like covering is chipping and looks like crap.

I would like to use a chisel and remove this covering to expose the original cinderblocks and then correctly cover them with come material. I'm not sure if I want to use stucco or a similar material to give the foundation a smooth look. I may want to use some kind of a fake brick to match the brick of my chimney.

What should I use if I am going for the smooth look?

What fake bricking material is out there that will hold up to the elements on an exterior surface? I recently saw a restaurant sided with what looked like really thin bricks that were adhered to the side of the building. I also noticed that the installation seemed to be top down, not bottom up. The finished work looked quite beautiful! I think this is called brick veneer. How well does this stuff hold up?

Have you considered faux stone, bolders or brick? Cultured Stone® - Stone Veneer and Brick Veneer

Hi Logan Hogging again
We call it pargeing a wall. The correct way to stucco is clean all lose material off wall. Use a galvanized wire and tap con it on. There is a shooter that's used also, The old days we used round spiral masonry nails that have bigger heads on them.

To walk you through this apply wire and check for looseness in it. Needs to be tight. The strongest material to parege with is Portland Cement. The material list
92lb Portland cement
50lb bag masonry lime
Masonry sand
The mix 92 bag with 1/2 bag with 30 Big shovels of sand Mix it all dry and then add water. Break it down. 1/2 Portland 1/4 bag Lime 15 sand.
This is done in two coats. Apply the first Scratch coat and cover over wire. Buy the scratch coat toolat the masonry supply house, It look exactly like an affro comb. ( Cheap way is board with a lot of nails sticking out of it) Let the coat set up and scratch it up. After it drys overnight, take a trowel and scrape it down. This gets rid of loose material and stays out of the finish coat. Mix same batch. Make sure the scratch coat is a bit damp before applying finish coat. I do this free hand but for you it would be a bit easier if you used a tapcon and temporarily attached a 3/8 wood strip for thickness gage. Use a 1by as a vertical screed board. Apply stucco fairly wet. Check with screed board running over wood tacked strips. Trowel smooth and let it partially set up. There are " Orange sponges" that can be used to smooth it out. You will need to wet the sponge and shake out extra mostiure from sponge to keep using. If you really want it smooth We use that yellow matters foam that is very dense and smooth in texture. As the first sponging is re drying use the matters sponge over that same area. This is for a REAL smooth look. The first "Orange sponging" can also the finish. Move the vertical wood strip Down the wall as you go. We also do a swirly look with the orange sponge or use a good horse brush for more texture. Use a retangle steel trowel to apply coatings

The veneers hold up well. The do better in warmer climates. Its not cheap. The prep is the same in wire. Additives are in mixes for good veneer. Also you can get a dye for the cement or use a pre dye mortar mix