Chile Seeds 

You may have heard that the heat is in the seeds, but this is untrue. The heat in Hatch green chile comes from the capsaicin in the chile, which is in the veins of the chile. When you break open a chile pod, you will see long vein-like strings of meat running lengthwise along the interior of the pod. In mild hatch green chile, these are almost completely white with the occasional hint of yellow coloring. This discoloration is the naturally occurring capsaicin. When you take a step up the heat ladder to medium-hot hatch green chile, you will notice the veins have a more noticeable streak of yellow. This noticeable increase in yellow/orange discoloration of the vein continues on up to X-Hot in which the entire vein is a yellow/orange color. A good rule of thumb is "the darker yellow the vein, the hotter the chile". Although there is still some naturally occurring capsaicin in the flat sections of the chile-pod's meat, the vast majority of it is found in the vein. When green chile is roasted, much of it is spread throughout the pod when cooked, leading to that unmistakable Hatch Green Chile flavor.

For this article check out Green Chile Myth #1 "The Heat is in the Seeds".

Chile Skins

After roasting green chile there is a dark colored peeling on the outside of the pepper. The peelings you get from green chile are simply the tough outer layer of the pod or the "skin". They do not have any flavor, and do not provide any protection for the meat inside. When frozen properly, green chile does not lose any of its flavor or heat, and can be peeled before freezing so that when you are ready to make any chile-containing dish you don't have to go through the onerous task of peeling.

For more information on this check out Green Chile Myth #2 "The Skin Keeps the Heat In"