Capitulation happens in a war when one side willingly decides to admit defeat.
The effect of capitulation is similar to War Morale falling to 0, and triggers the auto-resolution of the war applying all the war effects of the victorious side.
Any belligerent may capitulate at any time, with the exception of wars with no victory such as the raiding campaigns.
If the State capitulating is a main belligerent, the war itself will end. If it's a co-belligerent, the war will continue while the co-belligerent is out of it counting as defeated and therefore might have to pay war reparations if his side ends up losing.