Capacity Testing is a type of performance testing that evaluates how well a system can handle a specific load or number of users. It helps identify the maximum capacity of a system before it becomes slow or unresponsive. This testing is crucial for ensuring that applications can manage expected user traffic without issues. During Capacity Testing, various scenarios are simulated to determine the system's limits. This includes testing with different numbers of users, data volumes, and transaction types. The results help organizations plan for future growth and optimize their systems to maintain performance under heavy usage.