[everyman]

There are times when putting on a capo actually increases playing difficulty.

One example is along the lines of what jjvacc said -- I've seen some finger-picking instrumental pieces where a player puts on a capo for no other reason than he likes the sound of the higher tones. However, when you play in first position, the capo can get in the way of your hand positions. Depends on how bulky your capo is, of course (does anyone still use those u-shaped capos?)

Another example is using a capo when the arrangement calls for playing in higher positions. I'm thinking of Daniel Carson's guitar part on "Your Grace Is Enough" which was posted on Chris Tomlin's website. They play the song in A. The introductory riff (w/out capo) involves fingering the second string at the 8th, 10th, 7th, 5th, 3rd frets while droning on the open 3rd string. If you play with a capo on the 2nd fret, as Daniel does in order to play in A, you have to mentally add two frets to the riff. Fortunately, our band plays the song in G, but if we ever did the song in A, I'd have to do some extra counting.

[metropolis4]

nobody realy mentioned the benefit of using capo's in alternate tunings. I play a lot in DADGAD and open G tuning and there are really cool chord voicings you can get using these tunings and capoing that would not be humanly possible to play without the capo! Sometimes I'll use two capo's at once to get some really cool effects going that would require a third hand to play without the capo!