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Tell me what is the recommended way of harvesting seeds from hot peppers. I have all types little, to large and green, to yellow, to red. When do you take it off the plant and what do you do next.
Leave some peppers on the vine to turn red. Then I pick off and lay them on a paper towel or cloth to finish drying. You want to make sure they are very dry before disturbing them. I usually let them dry almost till next season or take a thread and string them up. Then you can pull one off and use for cooking. You can also plant the seed the next season.
Ivy's suggestion is essentially correct. Though you can speed up the process considerably by cutting open the pepper and removing the seeds. They shouldn't need washing (most peppers are dry on the inside), just lay them out for a week or two and then store them until you're ready to plant them again! Most peppers turn from green to red when ripe, but to be sure you can leave them on the vine until they begin to shrivel a little. If you are harvesting late season or have a short growing season, you can bring them indoors and they will ripen and mature their seeds just fine. The seed is viable for about two years when stored in cool dry conditions (usually in sealed containers).

There is also information on Peppers from the Seed TOPIC in the Food section of Troubled Times.  

Prefer full sun; damp, sandy soil; neutral pH, long growing season.
1998 Observations
Grower Shekhina found that a cold snap wilted her Cayenne Hot Pepper seedlings, and Grower Clipper found he failed also with peppers in a climate tending to cold snaps.