Many varieties of the
Capsicum species are not hot, or pungent. Most paprikas grown in Europe and bell peppers grown in the US have little or no
pungency. These varieties are used
fresh, or often used to color other foods.
The wilder varieties, on the other hand, range from mildly to extremely pungent. This is entirely due to the substance capsaicin, or, actually, a group of similar substances called capsaicinoids.
Pure capsaicin, or 8-methyl-n-vanillyl-6-nonenamide, is a whitish powder which is soluble in alcohol but insoluble in cold water, which is why drinking water to help alleviate the burning won't work.
The capsaicinoids are unique compared to other "spicy" substances such as mustard oil (zingerone and allyl isothiocyanate), black pepper (piperine) and ginger (gingerol) in that capsaicin causes a long-lasting selective desensitization to the irritant pain by repeated doses of a low concentration or a single high concentration dose. This is familiar to most 'chile-heads' as an increasing ability to eat hotter chile peppers and foods.