Well, I still think that capacity. should be based primarily on the infrastructure you build-infrastructure which you have to pay for each turn. Both technology and city improvements CAN boost the basic capacity generated by this infrastructure.
So, the way I would like to see it is that you have 3 forms of capacity-rail, road and air. Road 'capacity points' build up faster than rail, cost less than rail, but is 'slower' than rail. Rail generates fewer points, at higher cost, but allow for unlimited movement for any units that benefit from it. Air capacity builds up the slowest, is very costly, but is both fastest of the three forms of capacity.
Road capacity is generated the first time a city is connected up to ANY other city in your nation. Tech level and certain city improvements boost the basic CP's generated. Rail works the very same way. Air capacity is generated by airports and airbases-again boosted by technology.
So, what does capacity get used for? Well CP's ultimately represent the ability of your domestic economy to work at maximum levels, as represented by your per turn income. This represents your capacity's role in intra-city trade in goods and services and the collection of tithes and taxes from cities. However, CP's are also used to form trade-routes with foreign nations, moving food and shields between cities and moving units throughout your nation. Air capacity is used for airlifting units and air missions conducted by your airforce. The point is that, the more of each type of capacity you use, your ability to generate maximum domestic income drops. How much it drops depends on the KIND of capacity you are using AND the overall strength of your domestic economy. Of course, in the case of trade, the benefits accrued from the trades may overcome any income losses through the loss of capacity points.
Anyway, thats just a rough draft. I hope to put together a more comprehensive version of my idea at a later date.
Yours,
Aussie_Lurker.