MOIST soil does not harm a plant but wet soil will kill a plant eventually. It isn't the water that harms the plant, it is the lack of oxygen. Keeping the soil moist stabilizes the plant allowing for steady growth.
I’ve grown chillis indoors in England in 10” pots. In winter the plant goes into hibernation and dropping leaves is normal. I use to trim the rootball in early January, removing half, then putting it back into the pot with fresh compost. I also trimmed the stem to a 6-8” length. It would start to sprout again in late winter or spring. For watering, I preferred to bottom water, so stand the pot in a tray with some water in. Top watering encouraged fungus gnats which damage the plant. Chillis are hungry, they need feeding regularly when growing. I used tomato feed. Rocoto - Capsicum pubescens - does well indoors. I liked Habanero too, always got 50 or so fruits per harvest, two harvests a year.
