'Capisco' literally means 'I understand'. 'Capito' is the past participle of the same verb, and just means 'understood'. On its own it can be used as a question 'Capito?' meaning 'Got it?' or as a statement 'Capito' ('I got it). My understanding, as a learner, is that either word can be used as conversational response - for example if someone is explaining something to you and you comment from time to time to say that you are following. But I'm sure that a native speaker could give you confirmation of that.

If you explain something to somebody, the expected answer (excluding not understanding) is the almost full form: 'ho capito' (abbreviaton of ./io ho capito/ which we never use). The short forms /capito/ and /capisco/ are used in these contexts: - capito : when you agree to do something, ike following an order - capisco : is when somebody is talkiong to you about a fault related to your behaviour, it is a kind of 'I am sorry' The tone is also important here!