To debug pyright, open the root source directory within VS Code. Open the debug sub-panel and choose “Pyright CLI” from the debug target menu. Click on the green “run” icon or press F5 to build and launch the command-line version in the VS Code debugger. There's also a similar option that provides a slightly faster build/debug loop: make sure you've built the pyright-internal project e.g. with Terminal > Run Build Task > tsc: watch, then choose “Pyright CLI (pyright-internal)”.
To debug the VS Code extension, select “Pyright extension” from the debug target menu. Click on the green “run” icon or press F5 to build and launch a second copy of VS Code with the extension. Within the second VS Code instance, open a python source file so the pyright extension is loaded. Return to the first instance of VS Code and select “Pyright extension attach server” from the debug target menu and click the green “run” icon. This will attach the debugger to the process that hosts the type checker. You can now set breakpoints, etc.
To debug the VS Code extension in watch mode, you can do the above, but select “Pyright extension (watch mode)”. When pyright's source is saved, an incremental build will occur, and you can either reload the second VS Code window or relaunch it to start using the updated code. Note that the watcher stays open when debugging stops, so you may need to stop it (or close VS Code) if you want to perform packaging steps without the output potentially being overwritten.