> I guess the concept of a cap seems odd
Yeah, it does initially to me as well, but I suppose it's just another public policy lever for transportation, and acts a bit like congestion charging. For instance, in a lot of very busy streets in London, due to congestion, pollution, and desire to improve public space, there are debates about pedestrianization, or allowing through only buses, or allowing only buses and taxis, or allowing that plus local access.
For instance, Oxford Street (which has half a million pedestrians each day) shifted some years back to only allow through buses and taxis, to improve throughput and reduce pollution, and the new mayoral candidates are now thinking about pedestrianization. Ultimately, one person siting in a cab occupies the same space as 10-15 pedestrians (at Oxford Street densities), or perhaps 5 bus passengers.
Further east, Tottenham Court Road is getting a new Crossrail station (a new tube line), and is going to widen the pavements, and ban private cars, in order to deal with the massive expected increase in passengers. Taxis are more efficient than private cars, but much less so than other options, so it just depends on the context for the city centre, or the city as a whole, or for particular streets, as to how appropriate they are.
One niche that major taxi app services could fit into, in these contexts, is by enabling a system for pooling / shared-use. A London taxi with 4/5 people is probably no less efficient than a bus, and to do something like that takes scale and serious optimization work.