A quick note on heat: Capsaicin is found in the inner ribs, or veins, of chiles, not just the seeds. To minimize the heat (why you'd ever want to do that, I don't know), remove the ribs with the seeds. And when working with chiles, be careful. The capsaicin in the oils can burn your hands and eyes. Wear gloves when handling the hottest chiles, and work in a well-ventilated area.
Chile heat varies by type, with Anaheim and pasilla on the milder end and jalapeños and serranos packing somewhat more of a punch. Habaneros (or Scotch bonnets if you can find them) are legendary, and even naga jolakia (the ghost chile) is increasingly easier to find. For true hotheads, you can buy pure capsaicin by itself for a practically weapon-grade sauce.
Fresh green chiles are fine, though the flavor can be a little underripe and "grassy." Ripe red chiles are the best, though they are generally seasonal, available typically late summer through early fall.
Dried chiles can be found year-round, their flavor more concentrated and complex than fresh chiles. To use them in a sauce, toast them briefly over a hot skillet to add smoky notes, then soak them in hot water to soften. Once softened, they can be used just like fresh.