The capo can be used to change the key of the song. In the beginner’s songbook, Justin quite often advises which fret to put the capo on so that you can play along with the record. Sometimes he will give more than one option, e.g. Love Is All Around is written in the Key of G in the songbook, and needs a capo on the 7th fret , which converts it to the key of E, to play along with the original version by The Troggs, or at the 3rd fret, which converts it to the key of B♭, to play along with the Wet, Wet, Wet cover. To play the song in both those keys without using a capo, you’d need to be able to play Barre chords which are only introduced when you learn the F chord in grade 2
Edit: corrected the keys that the capo converts to
The capo is also used to change the key so the new key fits your voice better. If a song is for example in the key of D and that’s a bit too low for you to sing well, put the capo on say the 2nd fret, that will change it to the key of E and make it a bit higher.
In the context of the specific lesson Justin is referring to using a capo to simplify songs to use A, D and E chord shapes. For example if you want to play ‘How Bizarre’ but haven’t learned to play the C, F & G chords at this stage you can put a capo on the third fret and play chord shapes A, D and E to play along with the original record. If you don’t play along with the original record and want to sing along but find the key doesn’t fit your voice you can change the key by positioning the capo on an alternative fret or even removing the capo altogether.