Capacity utilization is a business term that is sometimes applied to IT to mean the efficient use of resources. Industry experts use the term "capacity utilization rate" to show how well existing resources are being used or at what percentage they are being drawn from.
Techopedia explains Capacity Utilization
One good example of capacity utilization in IT is in virtualized hardware and network environments. In such environments, instead of setting up physical devices and linking them together, systems administrators first create a network and then split it off into virtual machines and components through logical partitioning. They then allocate resources like CPU and memory from a central pool, according to what a virtual machine needs. Here, capacity utilization is the amount of central resources, whether they are processing power, memory or another resource, that are being used efficiently by the system.
In general, capacity utilization may refer to any resource and its function within an IT system. This is going to be an important metric for many CIOs and CTOs as they look at how well hardware/software or IT setups are working for the company.