Capistrano is an open source tool that automates deployment of web applications by allowing developers to deploy code to multiple servers from a single command, handling tasks like code transfers, database migrations, and restarting services; it works by using a deployment recipe file to describe servers and roles and then executes commands to deploy the application code and perform necessary migrations. Capistrano provides benefits like parallel execution of commands on servers, easy upgrades by using a code repository, and rollback of deployments.