Traditionally, the farmers dried it by keeping it in the sun for a few days. Drying can preserve chillies for long. To dry you can lay the chillies on a tray and put it in the oven to dry, and leaving the door slightly open to give a better airflow helps to eliminate the water vapours.
Green chilli cannot be dried. Ripe and red ones are first picked up, the dirt is removed and then it is placed in a dry place. The chillies can be placed on a wire rack to dry in a ventilated room or it can be tied in a string or thread and hanged to dry.
Dried ones can be used directly in meals or it can be used as Chilli powder. Such methods are widely adopted by people who plant peppers and get bumper crop at the end of the season as storing helps to use it well past the season.