This powder is made from dried Kashmiri chillies– a milder chilli with a deep red colour. It instantly imparts a vibrant red color to any dish with a hint of heat as well.
The powder is mildly hot, has a distinct flavour, and it adds a bright red colour to food.
Kashmiri chilli powder can be bought from Indian grocers, or best, from a specialist spice merchant. When buying, look for a fluffy texture. The fluffier the powder the fresher it will be. Make sure you actually buy Kashmiri chilli powder, and not one of the substitutes. It is common to sell degi mirch, which is a different chilli with added colouring, as Kashmiri chilli powder.
Refer also to this post on Kashmiri chillies.