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Watch the Using a Capo online guitar lesson by Cathy Fink from Clawhammer Banjo: Intermediate Module 1

The capo is the coolest thing since sliced bread for fretted string instruments.

According to Wikipedia it is short for capotasto, Italian for "head of fretboard". It's purpose is to raise the pitch of the strings evenly across the fingerboard, in other words, help you get in a different key without tuning up all of the strings.