I've heard that most of the heat in hot peppers is in the seeds and that if you remove them, the pepper will be mild.  Is that true?

--Robert

The active ingredient in peppers that makes them hot is a "capsaicin" (pronounced "cap-SAY-i-sin"), a  colorless, pungent, crystalline compound, C₁₈H₂₇NO₃.  The amount of capsaicin varies not only with the type of pepper, but with growing conditions and the degree of ripening.  The same pepper grown in hotter and drier conditions will contain more capsaicin and be hotter to eat. Heat from peppers is measured in Scoville units, starting at zero for sweet bell peppers and going to over 300,000 for Habañero peppers.

Capsaicin is concentrated not in the seeds, as is commonly believed, but in the fibrous, whitish pulp that holds the seeds, called the placenta.  As the pepper ages, capsaicin migrates from the placenta into other parts.  If you remove just the seeds and leave most of the placenta behind, you will actually do little to tame a hot pepper.  To get out most of the heat, you need to remove as much as of the placenta as possible, leaving only the fleshy outer fruit.

You can test this, preferably using a mildly hot pepper like a jalapeño, by dividing it into flesh, seed and placenta.  Going in that order, taste equal amounts of each part.  The amount of heat you experience should increase from fruit to seed and from seed to placenta.

Capsaicin does not dissolve in water, but does dissolve in alcohol and vegetable oils.  Drinking water has little long term ability to tame the heat of eating peppers.  Drinking whole milk or eating other fatty foods is likely to be more effective.