Background/Objectives: Capsaicin is the principal pungent compound in chili peppers and is increasingly recognized as a multifunctional phytochemical with systemic effects beyond its sensory properties. It has been linked to metabolic regulation, neuroprotection, inflammation control, and cancer modulation. This review aims to provide an integrative synthesis of capsaicin’s metabolism, its interaction with the gut microbiome, and its physiological implications across organ systems. Methods: We conducted a critical literature review of recent in vivo and in vitro studies exploring capsaicin’s metabolic fate, biotransformation by host enzymes and gut microbes, tissue distribution, and molecular pathways. The literature was analyzed thematically to cover gastrointestinal absorption, hepatic metabolism, microbiota interactions, and systemic cellular responses. Results: Capsaicin undergoes extensive hepatic metabolism, producing hydroxylated and dehydrogenated metabolites that differ in transient receptor potential vanilloid type 1 (TRPV1) receptor affinity and tissue-specific bioactivity. It crosses the blood–brain barrier, alters neurotransmitter levels, and accumulates in brain regions involved in cognition. In addition to its systemic effects, capsaicin appears to undergo microbial transformation and influences gut microbial composition, favoring short-chain fatty acid producers and suppressing pro-inflammatory taxa. These changes contribute to anti-obesity, anti-inflammatory, and potentially anticancer effects. Dose-dependent adverse outcomes, such as epithelial damage or tumor promotion, have also been observed. Conclusions: Capsaicin represents a diet-derived bioactive molecule whose systemic impact is shaped by dynamic interactions between host metabolism and the gut microbiota. Clarifying its biotransformation pathways and context-specific effects is essential for its safe and effective use in metabolic and neurological health strategies.