A cap is the right to receive a payment if an asset value exceeds a preset target.
In plain English, it is insurance against higher prices.
Assume you have exposure to rising short-term interest rates (such as LIBOR). You are concerned that short-term interest rates will rise above 5.50%.
You can buy a LIBOR cap with strike at 5.50% (usually denoted as K). If interest rates risk above 5.50%, you receive the difference between the interest rate and the strike: max(LIBOR - K, 0.00%) = max ( LIBOR - 5.50%, 0.00%). So, if interest rates were 6.00%, you would receive max(6.00% - 5.50%,0) = 0.50%.
This cap would cost you a premium. The premium is based on the market expectations that the future interest rate will exceed the cap strike. Caps with high strikes (i.e., targets less likely to be reached) will be cheap relative to caps with low strikes (i.e., those likely to pay out).