English question: What does "cap out" mean when it is used with school, as in "the school was capped out"?

It depends on the context:

surpassed

outdid

reached maximum limit

Examples:

filled to capacity

spent all the money available

slang= shot at (capped)

Sometimes "cap" is used to mean "limit" and occasionally "capped out" refers to having reached a limit. It's possible someone could say a school was capped out if it had reached a limit of students or of expenses, but it really isn't a common expression. It's even less likely in the sentence you give. If you encountered that sentence somewhere, are you sure that "it" refers to the school.

Maybe they don't have enough room to accept anymore admissions.

I have NO idea

I think it means "to play hooky"