Slice open a hot pepper and you will see tiny blisterlike sacs on the inner wall of the pepper. These sacs contain capsaicinoids or organic chemicals. Capsaicinoids make peppers hot.
The more sacs you see on the inside of a pepper the hotter the pepper will be. When a pepper is cut or handled roughly the sacs break and splash onto the pepper's seeds and inner walls. That's when you taste the hotness of a pepper.
The best known capsaicinoid is capsaicin. Capsaicin is so potent that the average person can detect its presence even when it is diluted in water to 10 parts per million.
The hotness or pungency of a pepper is measured in Scoville Heat Units (SHU). American pharmacologist Wilbur Scoville invented this scale in 1912; it is basically a taste test. Scoville asked five people to taste diluted capsaicinoids from peppers; if the tasters could still taste the hotness of a pepper when 1 part of the pepper was diluted with say 10,000 parts water, then that pepper would be rated 10,000 on the SHU. A habañero pepper is rated up to 500,000 SHU.