A die cap error happens when a coin sticks to the die and strikes more coins. As it continues to strike more coins, the cent that is stuck to the die becomes shaped like a bottle cap, hence the name "Capped Die". Some collectors will refer to these as Bottle Caps or Mushrooms.
Don't get this error confused with a "Struck Through Capped Die" error. A struck through capped die is the coins that are struck with the die that has the cent stuck to it.