How do I set the maximum capacity of a product?

Capacity is set on the availability rule, inside the option.

Open your product, then Options (calendar and pricing) and the option. In the Calendar tab, click an existing slot to edit its rule, or Add availability to create one.

Fill in Maximum participants, and Minimum participants if you need one, then click Save.

You can also cap a single category, two infants for example, in the Pricing and participants tab, with the minimum and maximum quantity fields.