The luminous unstable star (star system) eta Carinae is surrounded by an optically bright bipolar nebula, the Homunculus and a fainter but much larger nebula, the so-called outer ejecta. As images from the EINSTEIN and ROSAT satellites have shown, the outer ejecta is also visible in soft X-rays, while the central source is present in the harder X-ray bands. With our CHANDRA observations we show that the morphology and properties of the X-ray nebula are the result of shocks from fast clumps in the outer ejecta moving into a pre-existing denser circumstellar medium. An additional contribution to the soft X-ray flux results from mutual interactions of clumps within the ejecta. Spectra extracted from the CHANDRA data yield gas temperatures kT of 0.6-0.76 keV. The implied pre-shock velocities of 670-760 km/s are within the scatter of the velocities we measure for the majority of the clumps in the corresponding regions. Significant nitrogen enhancements over solar abundances are needed for acceptable fits in all parts of the outer ejecta, consistent with CNO processed material and non-uniform enhancement. The presence of a diffuse spot of hard X-ray emission at the S condensation shows some contribution of the highest velocity clumps and further underlines the multicomponent, non-equilibrium nature of the X-ray nebula. The detection of an X-ray ``bridge between the northern and southern part of the X-ray nebula and an X-ray shadow at the position of the NN bow can be attributed to a large expanding disk, which would appear as an extension of the equatorial disk. No soft emission is seen from the Homunculus, or from the NN bow or the ``strings.