The term Capacity is used, in various guises, to describe the potential maximum power output of an individual power plant, a whole power system, or part of a system (e.g. solar). So it is expressed in terms of Watts or one of its multiples (kW, MW, GW).
You’ll read various qualifiers to the term: for example installed capacity, net capacity, peak capacity, rated capacity, DC capacity and so on (yes, there are more). Although you can find specific definitions of each elsewhere, in practice it’s not unusual to find them thrown around rather loosely and unhelpfully (a cynic might suggest this is sometimes with the aim of presenting the biggest-sounding number…).
For example I’ve seen the “installed” capacity of Solar PV quoted in DC terms (i.e. the peak, aggregated output directly from the solar modules that make up the system). More useful is to know the “peak” or “rated” capacity of a solar power plant in AC terms: in other words what’s the maximum power the plant could actually put out into the grid on a clear, sunny day, after the output from the modules has been inverted to DC, along with wiring and other losses in the system. That’s the number the power system operator needs to know for planning purposes.
For conventional thermal power plants, “nameplate” or “rated” capacity refers to the maximum output of the generator, but some of that output is used by the power plant itself to drive cooling system pumps and other operating equipment. So “net” capacity is a more meaningful measure, quantifying the maximum power that can be pushed out into the grid after these losses. Because ambient temperature can affect the effectiveness of cooling, you’ll even see measures of “summer net capacity” vs “winter net capacity” in many cases.
The key takeaway: always check that any “capacity” measure you read actually means what it says, before blindly using it in any detailed analysis.
Finally, always bear in mind that capacity is measuring potential peak power output at any instant in time, rather than saying anything helpful about actual energy output over a period. To relate the two, you need to know the Capacity Factor of the generator(s) in question.
Proponents of renewable power can be guilty of focusing heavily on large capacity totals, to compare growth with that of competing sources of electricity generation, without also comparing actual electricity generated over time. A prime example of this is the example of solar PV in Germany where, as of the end of 2015, it accounted for over 21% of installed capacity but contributed only 7.5% of energy to Germany’s electricity generation mix.