Someone asks you : Do you know how to play chess?
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it is similar to someone asking if you play tennis. There are many degrees of "I play tennis." I think you have to say Yes, and then give some indication of your skill level just for orientation purposes.
Your response?
It could be on the street, inside the family, coffee shop, sauna etc.. I mean in any environment , not just on a tournament or anything like that. Not chess related environment, but could be chess oriented environment as well.