The Capital in Civilization III is the primary city of your civilization'sempire, characterized by the existence of its Palace. Your capital is the center of your empire and experiences almost no corruption, making it potentially very productive.
The first city that your starting Settler founds becomes your Capital (with a free Palace); you may move your Capital by rebuilding a Palace in another city. The location of your capital, and ease of access for your empire's cities to it, determines their corruption and waste. The closer your capital is to most of your cities, the lower the corruption for each of your individual cities nearby. The Forbidden Palace serves as a virtual Palace for the purposes of distance corruption but not rank corruption.