A capo is a device that is used to shorten the length of your guitar neck so that you can play open chords in any key.
To use a Capo, attach it to the fret of the key that you want to play in. For example,if you want the key of G, attach the capo to the 3rd fret. No each open chord that you play will sound 3 half steps higher than if you played them without the capo.
In this case, the open E chord will sound like a G chord, an open Am chord will sound like Cm, etc.