The burning and painful sensations associated with capsaicin result from its chemical interaction with sensory neurons. Capsaicin, as a member of the vanilloid family, binds to a receptor called the vanilloid receptor subtype 1 (VR1). First cloned in 1997, VR1 is an ion channel-type receptor. VR1, which can also be stimulated with heat and physical abrasion, permits cations to pass through the cell membrane and into the cell when activated. The resulting depolarization of the neuron stimulates it to signal the brain. By binding to the VR1 receptor, the capsaicin molecule produces the same sensation that excessive heat or abrasive damage would cause, explaining why the spiciness of capsaicin is described as a burning sensation.
The VR1 ion channel has subsequently been shown to be a member of the superfamily of TRP ion channels, and as such is now referred to as TRPV1. There are a number of different TRP ion channels that have been shown to be sensitive to different ranges of temperature and probably are responsible for our range of temperature sensation. Thus, capsaicin does not actually cause a chemical burn, or indeed any direct tissue damage at all, when chili peppers are the source of exposure. The inflammation resulting from exposure to Capsaicin is believed to be the result of the body's reaction to nerve excitement. For example, the mode of action of capsaicin in inducing bronchoconstriction is thought to involve stimulation of C fibres culminating in the release of neuropeptides. Basically, the body inflames tissues as if it has undergone a burn or abrasion and the resulting inflammation can cause tissue damage in cases of extreme exposure, as is the case for many substances that trick the body into inflaming itself.