Challange coins came into favor in the mid-90s as I was leaving the Service. The only way I have seen them used is for the drink challange in the club mentioned above, but in my experience, anyone could issue the challange, not just a superior. Lts and Capts use to take great pleasure in catching a more senior officer without their coin. In the AF, they originally had a SN engraved on them to keep track who they were issued to. I first saw them in the AF special ops community and when given one during a visit, I assumed it was simply a way of soaking me for drinks if I forgot it on subsequent visits. I was either told, or assumed that the tradition came to the AF special ops guys from the Army. The story is probably much broader than that. All I have given a above is my soda straw view of the coins.
One of the very early DOD acquisition reforms in the late 19980s I believe ('89 or so) included Congressional legislation that said there could be only one level of supervision between a major program manager and the Service Acquisition Executive (the senior person, usually a civilian, in charge of acquisition in the military service. That single level of supervision was called the PEO or Program Executive Officer, and he (or she) was typically a military General Officer with a small staff who directly supervised the major programs including “basket” program offices who had a large collection of smaller programs. This coin was a product of the Large Caliber Ammunition Program Office (which is, I think, at Edgewood Arsenal) and the commento on the back simply recognizes that this PM works for the PEO Ammunition.