The Capacility approach, pioneered by Amartya Sen in the 1980s and 1990s, argues that monetary poverty measures individual's well-being and fails to address the utility that individuals gain from others, their welfare. For Sen, capabilities are the ability to satisfy certain crucial functionings up to certain minimaly adequate levels. Poverty is then defined as a failure to achieve certain minimal or basic capabilities.
A capability is is the ability to achive a crucial functioning for life. For instance, a woman could have a monetary income but, because of gender discrimination, be unable to buy food for her family: She lacks the capablity to achive a basic functioning for life. A capability seems to combine the concepts of ability and capacity.