Industrial Capacity
Industrial Capacity (IC) is a nation's total capacity for production.
Base IC
Base IC is based on the the number of factories you have in your national provinces. If Albania, for example, has 4 factories in its national provinces, then it will have a base IC of 4. One receives only 1 IC for every occupied province with any factories, so even if Beijing has 5 factories, its owner Shanxi only receives 1 IC since Beijing is not a national province of Shanxi.
On top of Base IC your actual IC is based on many different factors, for example:
Minister Traits
For example, if a nation has a minister that gives an extra 5% of IC (like Germany and Rudolf Hess), then the overall IC increases by 5% of the Base IC. The same works for loss of IC.
Technology
If a nation has technology giving them an extra percentage of IC, the same process will occur as for Minister Traits.
Dissent
When a nation has a high percentage of dissent, the workers become more reluctant to work and thus IC drops by a certain percentage. The only way to remedy this is to raise Consumer Goods levels to curb dissent before your IC drops below the amount of IC required for Consumer Goods.
Peacetime Modifier
If you control a large nation such as the United Kingdom, France or the United States then you may have a peacetime modifier. This means that your IC is quite far below the Base IC. This is because the nation is at peace and not all the factories are required. Your Peacetime Modifier will go once you go to war. A 'phoney war' with a minor, faraway nation like Paraguay is ideal to get around this problem.