Capacity Factor is a key metric in power generation. It is the ratio of the actual, measured electricity output of a power plant in a specified time period (in energy terms, e.g. MWh) to the theoretical energy output, had the plant operated at full rated capacity (i.e. peak output) for the whole of the time period.
For example were a power plant with a rated capacity of 100MW to operate at that output for a whole year (8760 hours), it would generate 876,000 MWh of electricity. In practice, outages due to maintenance and breakdowns (loss of availability) and/or reduced output due to market requirements or lack of resource (e.g. sun, wind) will reduce the actual output. If this actual output over the year is 438,000 MWh, the capacity factor is 50%.
In business terms, capacity factor provides a gauge of how (energy) productive a power plant investment is, since this investment buys an amount of rated capacity, whereas energy sales then pay it back. So for two power plants requiring the same investment (to fund building the same capacity), the one with a higher capacity factor will generate more energy to sell. This in turn means more revenue and a faster payback, or the same revenue delivered at a lower energy price.