Capacity includes both reason and understanding (cognitive aspects) as well as freedom from psychological disturbance of emotion or mood (psychological aspects).

A patient's capacity may refer to his or her ability to make their own treatment decisions. Capacity, determined by a physician, refers to an assessment of the person's psychological abilities to form rational decisions, specifically their ability to understand, appreciate, and manipulate information and form rational decisions.
A patient that lacks the capacity to make reasoned medical decisions is referred to as de facto incompetent, i.e., incompetent in fact, but not determined to be so by legal procedures.

Adapted from Briggs M et al. A handbook of healthcare ethics and institutional ethics for staff in healthcare institutions. Edmonton. The Bioethics Centre. 1994. Internet. Accessed on October 24, 2018.
Leo RJ. Competency and the Capacity to Make Treatment Decisions: A Primer for Primary Care Physicians. Prim Care Companion J Clin Psychiatry. 1999 Oct;1(5):131–141