Capacity refers to the depth of the spine and pocket of a folder. The greater the capacity, the more sheet inserts your folder will be able to accommodate. Typical capacities are in the region of 5mm-8mm.
For a guide to capacity and number of inserts, see our info page Capacity - what is it and how much do I need?
Non-capacity folders have a single-fold spine, and hence no depth to the spine or pocket. They tend to be more cost-effective where only a few insert sheets are required.