A capo allows you to change the key of a song, and still play it in it´s original form. In other words you don't have to transpose anything. For example, if the key is Gmaj and you want to play it in Amaj, capo the first fret and play the song on the 5th fret using the chord and melody forms of Gmaj. (I think that's right, somebody correct me if I'm mistaken.) In that way, you play and open G form on the 5th fret and it sounds as an A.
It's helpful if you have trouble singing in certain keys, like me. I have a really hard time with Gmaj for some reason, but A and D are no problem. So if I want to play something like Ripple (in Gmaj), I capo it and that way I can play the original chord and melody forms, keep the original feel of the song without transposing everything to a different key. Still use 1st position Gmaj chords, but on the 5th fret.
I hope that makes sense and helps. peace
Goin' home, goin' home
By the waterside I will rest my bones
Listen to the river sing sweet songs
To rock my soul