You should buy an audiobook builder program. I use one called Audiobook Builder. It'll combine the files together and give them the proper extension, which I believe is .m4b.
Otherwise, you can convert them to .aac (this won't work with mp3) and then rename the file from chapter1.aac to chapter1.m4b. iTunes should then recognize it as a book, but each separate file will show up as a different book. The advantage of the audiobook builder programs is that it will bind it together so you only have one large book file.
Hope that helps.