what is chocobo racing capacity?

what does it mean or imply?
is 35 a good or bad capacity?

It means (probably) that based on your choco's stats it's rating is 30 so can only be in races within it's rating, a 30 rated choco can't participate in the 1-20 one. When you hit 41 you'll probably get a new tier to play in for even more rewards, maybe even 150 coins per win!

its to keep chocobo racing balanced so they implemented groups so makes it fairer