What a cap and floor do
A cap sets the maximum a price can increase in one adjustment. A floor sets the minimum it can decrease. Between the cap and floor, the price moves however the index moves. Outside those bounds, it stops.
Why contracts include them
An index can move further than either side expected at signing. A cap protects the buyer from a spike they cannot pass on to their own customers. A floor protects the supplier from a crash that would make the contract unprofitable. Neither side wants to sign a contract where the other side's downside is unlimited.
A worked example
A $1,000,000 scope carries a 5% per-period cap. The index says the price should rise 9% this period. The clause caps the payout at $50,000, not the $90,000 the raw index math would produce. The remaining 4% is either absorbed, carried forward, or lost, depending on how the clause is written, so that detail needs to be specified too.
How they are usually written
A cap or floor is normally a percentage, applied either per adjustment period (no more than 5% in any single quarter, for example) or across the life of the contract (no more than 15% total over three years). Per-period caps limit volatility. Lifetime caps limit total exposure. A contract can use both.
Symmetric or not
Some contracts set the same percentage for the cap and floor, a 5% cap paired with a 5% floor. Others set different numbers, because the two sides do not face the same risk. A supplier exposed to a volatile input might negotiate a wider cap than floor, since their real risk is the input spiking, not falling.
Match the bound to the real risk
Decide the cap and floor based on which side would be hurt worst by an unbounded move, and by how much. A clause with no cap or floor is not neutral. It just means one side is carrying risk the contract never priced.