The Online Merriam Webster defines capitulation as

1 : a set of terms or articles constituting an agreement between governments
2 a : the act of surrendering or yielding b : the terms of surrender 

In financial world, capitulation often means panic selling when the investors (majority of them) seek to sell their stocks for the only purpose of getting out of the market. Capitulation is typically seen in the final phase of a downtrend where investors are selling regardless of the price. The selling occurs massively during a very brief time period. During capitulation, there is almost no buyers with a vacuum of selling with extremely heavy volume.

Historical examples:

1929: panic sell happened which produced a huge market drop. Depression followed the market crash due to bad economic policies until the World War II.

1987: the stock market started to climb short after the panic drop and continued rebounding until the spring of 2000.

2001: the market crash after the bursting of the Internet bubble.