Udie,
A dividend is "declared" by the Board of Directors of a company. It is paid to the shareholders, or members, of that company in the proportion to the holdings they have. Alternatively, certain funds pay dividends from their profits. These retain the characteristics of an ordinary dividend due to the fact that all the investors in the fund are essentially stakeholders of that fund and therefore the income is taxed differently from say, interest income. There are certain tax credits that you can get from certain types of dividends. Can't remember what the rules are, I'd have to look it up. I don't do tax returns anymore.
There is not usually a requirement to pay dividends, unless there is a legal obligation to do so.
Capital gains are derived from the sale of assets, be it real property or stock (shares) of a company.
The interesting thing about capital gains is that they can be off-set by capital losses.
