A diet high in sugar can have an adverse affect on development. Virtually anything can have an adverse effect on development depending on who you talk to. Feeding your child too much or too little, letting them sleep too much or too little or go to sleep too early or late, switching toward mushy foods and then solids too soon or late, beginning to discipline your child too soon or late, too much or too little, there's someone, somewhere, with a study saying it's bad, and if you take all of them together you come to the inevitable conclusion that everything you are doing as a parent, no matter what you're doing as a parent, is wrong. Yet, somehow, the human race keeps on producing halfway-decent people.
Case in point, about chocolate being bad for your baby, the more cautious say that it's best to wait till the one-year mark, or at the very least, until she's shown that she's not allergic to or intolerant of dairy (which milk chocolate has enough of to be a problem), and then chocolate should be given sparingly in small doses to ensure she's not allergic to that either. However, chocolate allergies are extremely rare (less so than peanut allergies; most pediatricians are much more rabid about feeding your child peanut butter before age 1 than chocolate), especially in children of parents who've never had a problem. Gum disease etc. are also pretty low on the list of worries.
The bigger concern is that feeding a baby sweets regularly gives her a lot of carb energy in a very small package, decreasing her hunger in general, and the good taste can make her stop eating things that aren't so sweet, like baby food, insisting only on candy (or at least the sweeter baby foods like fruits). That leads to a host of issues with growth, development and nutritional habits, but since you as the parent are opposed to feeding her sweets in the first place, this is also unlikely to be a problem.
You should be less worried about the baby, and more worried about the grandparents. Having them pointedly ignore your wishes as the parent as to how your daughter is to be cared for indicates serious boundary and discipline issues which need to be addressed now. If they're willing to ignore your mandate that they not feed her chocolate, what else are they willing to ignore that could be much more harmful to your child growing up? If consistent discipline isn't enforced by all caregivers, your daughter will come to resent the more authoritarian of them (you) and prefer the people who give her anything she wants (grammy and grampy). You have to set boundaries, with consequences. You're the parent now, not them, meaning you dish the discipline. That goes up as well as down; you get to tell your parents what to do and not do when it comes to your child.
How you back up these rules with disciplinary measures is a judgment call on your part based on your situation, but one thing is certain, you must make them understand that no means no, just as you have to teach that to your child. As much as I hate to recommend it, you may have to draw the line and say that if you find out that they've given her chocolate ever again, they're no longer welcome to have her over or to come over to see her.