Short version: In fast speech, T plus Y tends to merge to TSH, spelled CH, because of where they are pronounced in the mouth.
Long version: As Adam hinted, this is really a linguistics question. Sumelic linked to a pretty comprehensive answer, but I'll give it another shot.
Here is a broad IPA transcription of one phrase in American English before and after the change:
/wʌtju/ what you → /wʌtʃu/ whatchu
When you compare them, you can see that although they sound quite different to the ear, only one segment changes: /j/ becomes /ʃ/.
That first sound is a palatal glide ("yuh") and the second is a palato-alveolar fricative ("shh"). If you try to make both sounds you'll notice how little your tongue changes position between them.
We notice that in the formal description, two features changed: "palatal" became "palato-alveolar" and "glide" became "fricative".
There are several reasons why features can change, but it's always worth checking if anything in the area could trigger assimilation, the "sharing" of features.
Here, the changing sound is preceded by /t/, an alveolar stop. The "alveolar" is why "palatal" shifted to "palato-alveolar". And a fricative is between a glide and a stop in terms of obstruction of airflow. The stop /t/ "pulled" the glide /j/ halfway, ending up at the fricative /ʃ/. Result: /tʃ/, pronounced "ch".
This assimilation happens easily in quick speech. It's a very natural change and I would not expect it to be bound to one region.
At least, not for phonetic reasons. For sociolinguistic reasons, it might have more stigma or cultural currency in different places among different people. I don't believe, however, there is really any group that avoids it. The answer sumelic linked to includes a clip of the Queen using it.
But writing this change by spelling it with a "ch" is very informal. That spelling is sometimes used as a hint that the speaker is overly casual, not careful in their speech, not educated, or not high-class, even though (again) even the Queen uses it!
Incidentally, despite the uncited sentence that closes the introduction to the Wikipedia article on palatalization, this is a case of affrication. I say that because the sound involved in the change is already palatal before the changes takes place. In fact, it becomes less palatal. But it does go from being a glide to a fricative. The resulting combination of a stop /t/ plus a fricative /ʃ/ is an affricate.