Okay, so you take Pepper A and cross it with Pepper B, the first offspring from those two will be F1 (filial 1) which means the first generation from that cross. F1 tends to display the dominant genes from the parents.
When you grow that seed from the F1 plant those will be F2. F2 is all over the place, some will look more like the "mother" some will look more like the "father" and all kinds of mixing up (for better or for worse). When you pick the one you want (with the right blend of characteristics) from F2 (you have to grow out a lot of plants, at least 20 to get the right traits in one plant), you then grow seed out from that particular plant.
When you grow out F3 you're basically looking for the one that is just like the one you selected in F2. By the time it gets to F8 (eight generations) you've got a mostly stable variety and don't need to worry too much about growing out a lot of plants to find a good one.
