Chillis are a fruit and a spice
Chillis are fruit because these often colorful pods bear seeds. And chillis are also a spice because its tender pith (or placenta) yields not only seeds but the pungent chemical capsaicin, a powerful palate burner with which we love to hurt ourselves in salsas, stews, and every manner of sauce. Apparently, we all love a little pain...chillis are the most cultivated spice in the world, followed distantly (a factor of 20) by black pepper.
A native of South America, there are hundreds of varieties of chillis grown throughout the world, though most we commonly eat come from a single species, the capsicum annuum. Those favorites include the bell pepper, jalapeno, ancho, seranno and even cayenne. Scotch bonnets, tabasco and a few others each come from other species, but there are only about five species we eat. No matter what kind you've got, note that chillis are hottest just before they ripen, but as time wears on, the potency wears off.
Making sense of the flavors
Chillis hotness come from capsaicin, a substance produced in the pith that migrates onto the seeds. If you want to remove heat from your chillis, split them in half or quarters and carefully excise the pith and seeds. You won't get rid of all the heat, but you'll reduce it significantly. Heat pungency is measured in scoville units, after Scoville the scientist. The scale is set at 1 for black pepper, and then chillis go up from there. Habaneros can reach 500K scoville units.
There are there are plenty of other flavor components in chillis other than heat, flavors that we regularly mess with and enhance by drying, smoking, and pulverizing. Chillis are in the same broad flavor family with eucalyptus and cinnamon. This family of flavors, the phenolics, are also found abundantly in wine, which in part explains why some wine writers talk about green pepper flavors and aromas when describing aromatic whites.
There's no great way to tell what a pepper will taste like, or even it's hotness, just by looking. There's no correlation between size and heat, shape, or flavor that you can rely on when shopping. You can discern ripeness in part by their green color, but the most reliable method for choosing the proper pepper is to sample, settle on a few varieties you like, and keep notes.
Chilli is a thickener
The walls of the chilli fruit are made of cellulose, so when they're dried and ground to a powder, they do a great job at thickening. The balance between their thickening power and the flavor they contribute is key, so make sure you taste before you adjust for thickening. It's easy to overheat a stew or sauce while you're trying to get the texture right.