"Small peppers are spicier/hotter" is used to warn people not to underestimate the little guy, kind of like the English expression, "good things come in small packages". From the Korean perspective, this proverb often pertains to how a relatively small country with 40 million population, South Korea, can remarkably compete so effectively against huge countries on the world's stage in so many areas such as the auto industry, electronics & communications, videogame/film industry, shipbuilding, skyscraper construction, bio-medical engineering, and in international sports such as the Olympics (archery, short track ice skating), World Cup soccer, LPGA/PGA, MLB, mixed martial arts, etc, etc.
Ironically, while S. Korea is proving this proverb through constructive & positive reasons, N. Korea is proving the proverb through negative & confrontational/provocative reasons by violating international agreements and developing nuclear weapons, becoming one of only a few countries in the entire world that can produce ICBMs (defined as long range missiles that can travel >5,000 kms) and by being a thorn in the side of freedom & democracy.