CAP is the format used to play with the Pokemon that Smogon's community created as part of their "Create-a-Pokemon" project.
The Create-A-Pokémon project is a community dedicated to exploring and understanding the competitive Pokémon metagame by designing, creating, and playtesting new Pokémon concepts. source
It has similar rules to OU, with the main difference being that players may use the Pokemon Smogon has created. The community workshops each idea and adds the most interesting ones to the format.
The main reason for the game is to see how new creations affect the OU metagame (and, of course, there is a certain satisfaction in having your own ideas added to Pokemon in some capacity). CAP was also of technical interest to the developers of Shoddy Battle, an old simulator.
You can read more about the Create-A-Pokémon project here on Smogon (this guide is out of date but gives an overview of the project's ethos).
