‘Capabilities’ are SmartThings’ way of abstracting the functionality of devices in a standard way. Or to put it another way, saying what well known commands and attributes they support. So if you have a device with capability ‘Switch’ you know you can request it be turned on and off with ‘on’ and ‘off’ commands, and you can look at the ‘switch’ attribute to see whether it is on or off. Although custom capabilities are on their way, you get the most mileage out of using standard capabilities.
A ‘Media Input Source’ capability has been defined, with a ‘setInputSource’ command, an ‘inputSource’ attribute for the current source, and a ‘supportedInputSources’ attribute to define which sources are available. So anyone wanting to support input sources when integrating their products into SmartThings is not being held up by a lack of a standard way to present things (though whether the SmartThings app has a plugin for it yet, I couldn’t say).
Update: A critical ‘not’ had gone missing from the last sentence.