A capsule hotel is like a big box with many little boxes inside it where you can sleep. Imagine you have a big closet (the main box) that has many shelves (the little boxes) for clothes. But instead of clothes, people can sleep in them! Each little box can fit one person and has a mattress, pillow, and a blanket.
So, when you want to sleep in a capsule hotel, you go to the reception desk, tell them how many little boxes you need, and pay for it. They will give you a key to your little box. You go to your little box, slide the door shut, and you're inside your own little sleeping space! There are usually small lights and air conditioning inside, so you can control the temperature and see what you're doing.
You don't usually have a lot of space inside the little box, but it's cozy and private. Capsule hotels are often used by people who don't need or want a big hotel room, like backpackers or people who only need a place to sleep for a few hours.