Volume refers to the amount of space an object occupies, while capacity is the maximum amount a container can hold. For a 4.5-year-old, using concrete examples like filling a cup with water can illustrate these concepts effectively. Demonstrating with different containers can help show that two containers can have the same volume but different capacities. It's important to simplify the definitions and use relatable, everyday items to aid understanding. Teaching these concepts at a young age can lay the groundwork for future learning in math and science.