I have seen this in big bell peppers that I grow, I always assume it is like a skin tag on humans? Just kind of an extra growth.

It's an "internal proliferation" and it's cause is thought to be genetic, though not known/understood well.

It shows up via selection in seed lines and it has been found to be unaffected by external influences (weather, pests, etc).

I've seen it quite a few times (from peppers from the store). Always in the green peppers, too.

This is what my friend just wrote me .... :

" That little pepper inside a bigger pepper is called an "internal proliferation." Its form can vary from irregular and contorted to a near-perfect but sterile fruit.A pepper growing inside a pepper is a type of parthenocarpy, which is the formation of fruits without fertilization or the formation of seeds. No one is sure what causes them, but temperature and nutrient levels have been ruled out.Plant breeders, who consider this anomaly undesirable, keep an eye out for it when selecting for new cultivars, because the trait is inheritable "

I am not sure why this trait is undesirable since this part of the pepper is edible, too.

Internal proliferation happens with many seeded fruits - tomatoes, eggplants, citrus, etc. - and is especially common in those that are picked unripe and artificially ripened for market. This is a common question on both the Peppers forum and the Tomato forum here.

As others have said whether this is due to the rapid changes in temps and humidity or the ethylene gas used to ripen them isn't clearly understood.

Undesirable? Not really unless the fruit ages substantially before use as the internal core can end up full of roots and sprouted seeds - unappealing in appearance.

Dave