Well, not exactly. They reduce the arc at the points as the open. They are a bit tricky to understand and explain depending on your physics background. They are the electrical equivalent of shock absorbers or vibration dampeners. They help the circuit resist changes in current flow. Starting with your points closed, the capacitor is shorted to ground by the points, (So is you coil). The other siide of your coil has some voltage on it and the coil is "charging up" to that applied voltage.
When the points open, the voltage in the coil wants to keep going to ground. That's not good for your points becasue the voltage arcs and carries some metal atoms from one point to the other point. voltage flows the opposite of what the original Phd's studying it thought. It flows from minus to plus. so your points should pit on the negative side and get a point growing on the arm side. (they thought the flow was from anode to cathode and labeled them backwards. (I think I have that memorized right.)
The capcitor is like two giant metal sheets with a thin sheet of plastic keeping thm from touching. As the voltage trieds to keep flowing to ground, the electrons (not really but its a good analogy) are pushed through the plastic and cross over from the - plate to the + plate until there isn't enough electromotive force left to get them accross. During this transfer of electrons, the arc at the points is miimized. This type of capacitor doesn't normally wear out. But the internal connections can open or the sepatating sheet can allow the plates to touch shorting the capacitor. Its easy to tell if it is shorted, not so easy to see if it is open. I haven't tried this for a long time, but I think you can quickly connect a sensitive ohm meter to the capacitor and see the needle twitch, jump, show some resistance that just as quickly goes away. You are seeing the current flow. Each time this happens, the current flows through the capacitor for part of the Dwell time. If the cap is shorted, no spark to the plugs. If it is open, big spark will jump at thed points and they pit real fast. In 50 years of changing points, I've never changed a capacitor. I've just never found a bad one. Can't say that about many things....