You can harvest the seeds and use them next year. In fact, you could replant them shortly after harvesting and drying them this year but probably wouldn't want to. They most likely will grow true but if the pod they were taken from was cross pollinated with another variety of pepper, they may come out different than the original plant. Chances are low of that with peppers in most cases since peppers can "self pollinate" and mostly do so. In that case, they grow true. You can "isolate" your plants to ensure cross pollination doesn't occur but most growers don't bother with the hassle unless they really want to ensure purity. There are several methods to prevent cross pollination. Most commonly it is simply ensuring a large distance between varieties. Some say a quarter mile but generally anything over a couple hundred feet is a pretty good assurance. You can bag individual branches and blossoms or you can "manually pollinate" the blooms.
But yes, you can harvest seeds and grow them out next season. I have very successfully grown out seeds from peppers purchased in a super market.
Bruce

Or you can overwinter your plants. Peppers are perennials that just don't like the cold. Where it doesn't freeze they just keep on trucking. I have some nice four year old plants since it doesn't freeze in my house.

This post was edited by DMForcier on Wed, May 29, 13 at 16:17