The legal term "capacity" means that a person (who is judged to have capacity) is legally fit to perform some act.
Different conditions constitution capacity for different acts. For example, no 16 year old in the United States has the capacity to vote.
In general, though, a person is deemed to have legal capacity if he or she is of age and also is of sound mind.
The word "capacity" is often used in context of a "diminished capacity" defense. In this case, a defendant in a criminal or civil case can claim he or she did not truly have the ability to act in a reasonable manner. Because of this, the defendant claims, he or she can not be held responsible for some particular action or inaction.