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if you are speaking about the cap connected to old style points based ignition systems (??) - this is going back a long time, but I think this is correct (anyone?) - the capacitor is connected to the ground side of the points. When the points are closed 12V is flowing through them energizing the primary coils in the spark-coil. When the points open the energy field in the primary coils 'collapses' inducing a current into the tightly-wound secondary coils, which changes the 12V to (varies by spark coil) 20,000V (50,000 in some I seem to remember) to power the spark plugs.
Now the capacitor - while the points are closed and 12V is flowing through them high amperage is wanted but you don't want a direct short to ground, so the capacitor acts as a ground and 'absorbs' the incoming 12V that are coming through the points. When the points open the energy stored in the capacitor instantly dissipates with no arching/grounding problems, the power just 'goes away'. Some Electrical Engineer can explain that one better than I.
If the capacitor goes bad you will not have proper current flow through the points, you could be going straight to ground, or the cap is leaking so will no longer accept energy to hold. If that cheap part with 1 wire and 1 screw goes bad, no spark.
Hope this helps. Boy I love the way old ignitions systems worked, easy to understand, easy to maintain.
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