I would like to know the difference between Ambient temperature vs operating temperature? In datasheets they specify operating temperature for IC's. ex -25°C to +125°C, so does this mean even though the IC's generate heat and ambient temperature is 125°C it would work(with the die temperature being greater than 125°C as IC is generating heat), or is it the die temperature(ambient has to be less than 125°C with th junction temperature of 125°C)?
Ambient temperature is the temperature of the air around the chip.
Operating temperature is the temperature of the chip (die) itself. Since the chip is (typically) generating heat, the operating temperature will be higher than the ambient temperature.
To know the ambient temperature I would require to know the thermal resistivity of the chip, but some of the datasheets do not provide this information, so how do I go about it?
To know the junction temperature you need to know the ambient temperature and the various thermal resistances between the junction and ambient. If you can't get the number for a particular chip, use the numbers for another chip in the same package. Preferably one with a similar die size, but really there's so many fudge factors in estimating the thermal resistance that it doesn't make that much difference.