Cape Mario is one of Mario's transformations, activated by using a Cape Feather. As the name implies, the item gives Mario/Luigi a cape, and the ability to fly. During flight, Mario can dive and hit with strong force.
History
Super Mario World
Cape Mario made his first appearance in the game Super Mario World as a common powerup. With a cape, Mario can not only fly, but twirl to knock enemies over as well. If the player is flying and is hit by an enemy/projectile, the player will not lose the power-up, but instead fall down with a slow spin. The item's behavior is similar to that of the Super Leaf from Super Mario Bros. 3.
Super Smash Bros. series
Super Smash Bros. Meelee
The cape appears in the Super Smash Bros. Melee as Mario's side-B special. The move can deflect projectiles, in much similarity to the Franklin Badge, except it can deflect any projectile, excluding explosives. As a bonus, the cape can flip other fighters around. Dr. Mario also has his own exclusive cape move, named the Super Sheet, and it does about 2% more damage. (12% damage overall)
Super Smash Bros. Brawl
The cape returns in Super Smash Bros. Brawl for the Wii as Mario's side special, serving same purpose as it did in the previous installment, and has no major differences, aside from the new "Cape glide" move.
Super Smash Bros. for Wii U/3DS
The move reappears in Super Smash Bros. for Wii U/3DS for the 3rd time in the series, still not having any major differences aside from Dr. Mario appearing again with the Super Sheet move.
Super Mario Advance Series
Super Mario Advance 4:Super Mario Bros 3.
In Super Mario Advance 4: Super Mario Bros. 3, It is a power up card exclusive. When the power up card for the Cape is scanned, it will turn Mario/Luigi into cape Mario/Luigi when used. However, it acts exactly the same.