The recipe
CAGED is the abbreviation for chords symbols related to the notes C, A, G, E, and D. In fact, they indicate five different configurations to build a chord in the guitar arm. The first chord is C major and you can build it starting at the first fret. When you press string 2 in the first fret, string 4 at the second fret, and string 5 in the third fret you have the C major chord, however, if we put a capoteaste in the guitar arm attaching all the strings in the first fret, we have the C sharp major chord and if we slip of fret in fret we change the chord in halftones.
We have the same when we press the strings in the second fret to build A major chord and then slip along two frets and press the index finger along the third fret, moving the whole chord 2 frets, we have then the C major chord. Now consider E major chord starting at the first fret, then move the same way and you have F major, then F#major, and so on. In this configuration, the C major chord will start at the eighth fret.
Schematic Diagrams
The following figures show examples of the five configurations or five shapes.
The first image shows C, D, and E major chords build over a C shape. Note that we moved the C major chord along the guitar frets. The same we did for A, B, and C major chords using the A shape.
In the second image, we first built the G major chord and then slipped along the guitar fret to produce A major on the tone above. So, we moved two frets along the guitar arm. The same we did for E and D shapes, building G major in E shape and E major using D shape.
The same goes for all chord variations. Thus, a minor chord follows the A configuration in the minor position which when moved will produce Bb minor, B minor, and so on.