Damage Cap adds a "Soft cap" and "Hard cap" to damage.
"Soft cap" - damage up until this point is not affected at all.
"Hard cap" - damage will not pass this amount.
-all the damage from the soft cap till the hard cap is halved
So if you were to deal 10 hearts of damage and the soft cap was 5 hearts, the damage outcome would be 7.5 hearts of damage.
Both soft cap and hard caps for player and mobs are configurable in the config.