The "CAGED" System is a system for deriving fingerings and positions used most notably by famous jazz guitar player, Joe Pass. The acronym "CAGED" stands for the the roots of the basic open position major chords: C, A, G, E, D. Basically, you use these chord forms as a point of reference for playing various other chords or scale patterns across the guitar neck. For example, play a 'C' chord using the 5 finger patterns (the C,A,G,E and D open chord forms). You will have to move these patterns from their original position to get all 5 'C' chord forms. You can refinger these garden variety chords using your index finger as a barre:

(C Form) -- start at the 12th fret
(A Form) -- start at the 3rd fret
(G Form) -- start at the 5th fret
(E Form) -- start at the 8th fret
(D Form) -- start at the 10th fret

You could use these basic forms to play in any key over the span of the guitar neck. Using the 'C' chord example above, you could derive 5 sets of finger patterns for the Major scale that roughly correspond to the positioning of these basic chord forms. Likewise, you can build other simple or more complex chords from the 5 basic chord forms. It mainly gives you a frame of reference when you play.Joe Pass discusses this system in his instructional books and videos. Check out the book, "Joe Pass -- on Guitar"