First let's clear up the spelling. You will see this popular pepper spelled "chili", "chilli" or "chile". They are all acceptable spellings of the chili pepper. However, the spelling "chili" seems to be the more predominate spelling. We will use all forms of spelling in this article.
The chili pepper is a major ingredient that distinguishes authentic Mexican food from TexMex, CalMex and other Americanized versions of Mexican cuisine. Generally, these alternatives to authentic Mexican food substitute tomato for the chile pepper. And the truth is...it just isn't the same without chili peppers.
There are hundreds of varieties of chilies...some mild, some hot and some almost lethal. The hottest part of the pepper is the seeds and membrane inside the chile. Most recipes call for these to be removed before using in cooking. What's left is a little heat and all the flavor.
Since many of these chile peppers are not available worldwide, the common practice is to substitute jalapeno peppers when necessary, since they seem to be available universally.
Here are some of the more popular peppers used extensively in authentic Mexican cooking:
These are dried Poblano peppers. Dark red chilies with a mild flavor used in many sauces. Probably the most popular chile used in Mexican cooking.
Mild, light green chilies used mostly in the United States for Chiles Rellenos.
Very flavorful jalapeno peppers that have been dried and smoked. Sold dried and canned.
Another mild chile much like the Anaheim in look and taste.
DON'T MESS WITH ME! Not often used in Mexican cooking...for a good reason. This pepper is deadly hot. Just thought I should mention it. However, it is not the worlds hottest pepper. That honor currently belongs to the Naga Jolokia pepper said to have been developed in India. At the time of this writing, this pepper holds the world record of measuring 1,041,427 Scoville units (the standard for measuring hotness in peppers). Just to give you a point of reference, a jalapeno measures no more than 5,000 Scoville units.
A dried red chili that is used more for color than flavor
Small, yellow, mildly hot, sold fresh or pickled.
Mild flavored, brown peppers frequently substituted for Ancho peppers, although a bit more pungent.
Can be mild or hot. Look like bell peppers. Used in Chiles Rellenos.
Small, green and very hot. Frequently used in salsa.
As noted above, there are many chili pepper varieties. These are just some of the more common ones used in Mexican cooking.