A Capo is a type of clamp that is placed across all strings of your guitar. This shortens the amount of frets you have open to you, and raises the pitch of all your strings. THIS DOES NOT affect affect how one note sounds at a individual fret (For example, the 9th fret on either E is a C#. Even if a cape is clamped on, that particular fret will still produce a C# pitch when fingered and struck.).
Using these devices makes playing different songs in different keys more convient, especially when alternate tunings are concerned. Say you were to play a capo-less song in the key of E minor, and were looking to give your song a new sound without any dramatic altering. Place the capo on the 3rd fret of your guitar, and strum the open strings. In standard guitar tab is would look something like this:
E - 3 B - 3 G - 3 D - 3 A - 3 E - 3
With the capo equipped, play the song with the same notes and chords as if the capo was not there. Your E minor song has been transposed to a G minor song with little hassle. It's important to remember to play the same figures and shapes as you would without your capo, otherwise your song will sound different and unrelated to the song you transposed from.
Now when we look at a tab that concerns a capo:
This-
E - 3 B - 3 G - 3 D - 3 A - 3 E - 3
Will become this -
Capo III E - 0 B - 0 G - 0 D - 0 A - 0 E - 0
Remember, the pitches of the stings has changed as well. Plucking the strings with the capo at the 3rd fret will not produce open E,B,G,D, and A pitches. They will insted produce G,D,A#,F, and C pitches in their place.