Population Capacity or Housing, represents the amount of units your civilization can support and maintain at any one time. The higher your population capacity, the more units you can field in battle or can contribute to your economy. Every unit you can build with small exceptions, will need a certain amount of housing - representing their 'population cost'. Some Units will need more housing than others: Female Citizens, Citizen Soldier infantry and cavalry typically cost 1 while Siege Units and warships can cost up to 5 each - heroes and champion units individually vary but often require only 1 especially if they're infantry.
They are typically provided by Houses, Fortresses and to a small extent Civic Centres. Although some Civilizations have specific bonuses or special buildings that also provide some population capacity, such as the Gauls with their Tavern and Barracks.