Yes dried peppers can be used to make sauce. A few notes though. Drying peppers has a number of effects.
First off it can reduce the heat of the pepper.
It also can substantially change the flavor of the pepper. For example take a Yellow Hungarian wax pepper, try it fresh. It has a sour, almost pickled like taste to it. Then try it dried, it becomes smooth flavored almost cheese like.
Texture unless you fully rehydrate the pepper before making the sauce. You will find the texture changes a lot as time passes and or heat is applied. This can be good or bad depending on if you milled the pepper first, and what you intend for the sauce.
Dry peppers will also make you sauce more "chemically stable" Simply because the only water and or acids in your equation is what you added, and not what the pepper contained.