The CAGED system is one of the most sophisticated systems ever to teach guitar. Here's an easy way to explain the theory:
C, A, G, E and D Major are the only open chords on a standard tuning guitar, and to play other chords we have to assume a shape. Most Barred chords that are played on the E string take the E position, and the A string the A position. Similar for D string (even though it's rarely used).
The system also helps us identify different possible patterns for scales across the board. Learning guitar is all about identifying trends, and every scale is a combination of these patterns. The minor pentatonic scale, for instance, can be played across the board in 5 positions, and you guessed it right! The positions assume the patterns taken by the CAGED chords, hence five positions. It's the same for major and minor scales, Also for jazz-based modes on guitar.
CAGED is an easy way to approach learning guitar and the music theory behind the rhythmic and the solo patterns on a guitar.