"Capacity" is an important concept in health law, yet one that is difficult to define (mainly because there are so many different types of capacity). Capacity can be thought about as mental ability. It is a person's ability to understand information and apply that information to a circumstance. Notably, capacity is not the same thing as intelligence. A person can be highly intelligent, yet have cognitive impairments that result in problems with judgement and decision-making.
What makes capacity so complicated is that there are many types of capacity (for example, capacity to make treatment decisions, capacity to marry and capacity to make a Will). Each type of capacity has its own set of rules and its own threshold that is used to determine whether or not a person is capable. These thresholds are legal standards, and do not rely on medical testing.
This is why, when discussing a patient or resident's capacity, it is important to be specific. Simply stating that a person is "incapable" is generally incomplete, and should be followed with the type of capacity at issue. This way, it is known which legal test for capacity must be used, what the person's rights (if any) are to challenge the finding of incapacity, and who (if anyone) can automatically take over decision-making.
Finally, it must be noted that capacity can fluctuate. As a medical condition evolves, or is treated, a person can lose and regain their capacity.