The following assumes the G tuning: (D, B, G, D, G). If you’re a C tuning banjo player, the discussion is still relevant, but the above diagrams won’t apply.
5-string banjo styles make extensive use of the drone G string. Its note sounds frequently in every piece. Inevitably it can clash, sometimes more so, sometimes less so. An example will illustrate.
An ordinary chord has three notes, a third (two scale intervals) apart, for example the D chord, consisting of D, F#, and A. These three notes have (musically) logical names: D is the root, F# is the 3rd, and A is the 5th. Added thirds continue the logical names: the first add-on is the 7th, the second the 9th, etc. Dissonant chords are named for the highest of these thirds. The most dissonant chord in this measurement is the 13th chord, since the 15th simply brings you back to the first note.
How dissonant is a D7 chord? Only a little. But how dissonant is a D7 chord with a G (the short 5th string) added? D, F#, A, C, E, G—it’s a D11 chord, the next most dissonant possible. If you’re playing in the key of G, you’ll play a lot of D7s; and they’ll frequently have that G added. That’s the style, and that’s OK.
But suppose you don’t want that dissonance? The only solution on a standard 5-string banjo is to avoid the 5th string when you play a D7. (Many arrangements do exactly that.)
With a capo-ble banjo it’s easy to fret the 5th string to A, one of the 4 notes of the D7 chord. As the diagram above shows, that allows all five strings to play notes of D7. I call the result the “sweet D7.” Many other chords can be similarly “sweetened.” This is a flexibility not available with the standard banjo.