A capo is a device that often resembles a clamp. The capo is placed on a fret of the guitar in order to change the key a song is played in without having to change the finger positions of the chords. A capo can simplify more difficult songs without compromising its beauty or sound.
The capo pushes down all of the strings on the fret you place it. In a way it "shortens" the playable area and makes everything you play sound higher.
When a capo is in place, the next fret after the one the capom is placed on can be treated as the first fret. Chords such as C and G that have many open strings (strings that you play but don't press down with your finger) will be playable with their original finger positions.
Below is a picture of a capo. Not all capos look like this one does but it is a good representation of the average capo.
This next picture is a capo on a guitar to give you an idea of how the device works and how to position it properly.