Ordinary market-cap multiplies the whole supply by the latest price, which flatters a market where only a fraction of coins trade. Realised cap instead prices each coin at the moment it last changed hands, so dormant coins are carried at their old, usually lower, value.
The result behaves like an aggregate cost basis for the network. It grows when coins move at higher prices, meaning new money has entered, and it barely falls during crashes because old coins are not repriced. Long-run floors in realised cap are the basis for several cycle-bottom heuristics.
Limitations: exchange internal transfers and self-sends reset cost basis incorrectly, lost coins remain counted forever, and the measure exists cleanly only on utxo chains. It is an estimate of invested capital, not a valuation.
Related: mvrv, nupl, market-cap, utxo