Capital gains income is defined as the growth in the value of your shares. So if you buy a share for $10 and it's worth $15 later, you have a $5 capital gain.
Dividends are not considered a capital gain, they're a separate type of payment. Perhaps confusing the issue is that dividends and capital gains are taxed at a lower rate in the US than other types of income are taxed. That doesn't make dividends the same as capital gains, but a lot of Americans will group them together because they're taxed at the same rate.
Interest is the income you receive from a bond or other debt. It's a periodic payment just like stock dividends, it just has a different name because it's a return on debt rather than equity. In the US, interest is taxed at the regular tax rate and not at the lower dividend/capital gain tax rate.
This all relates to me wondering how I am going to draw 4% when dividends of my funds only hit 1.7%. I did not want to eat into the shares themselves.
It's okay to sell some of your shares. Historically the price of stocks has increased quickly enough to allow you to sell a small percentage of your shares every year and still maintain the same purchasing power over time.
Realistically, a company has two choices of what to do with its cash: they can pay it out to shareholders in the form of dividends, or they can hold on to it within the company to invest in future growth. Let's say Company A has a $1 million profit. They pay out the entire profit in dividends, and your shares retain the same value because the business is not growing. You have no capital gain income here. Company B, on the other hand, also has a $1 million profit, but they pay no dividend. Instead they use the money to upgrade a manufacturing facility to increase their production, or they increase the size of their sales force, or something along these lines. Investors notice this and the price of the shares goes up as the company grows. Here you have a capital gain income but no dividend income.
The article is talking about how many investors have a propensity to spend their dividend income, but not their capital gains income. They'll take all their dividends from Company A to pay their bills in retirement, but are afraid to sell some of their shares in Company B to unlock the profit they've earned from that investment. In reality there's no rational reason to do this. Dividends and capital gains are two different ways for a company to return value to its shareholders; you should take full advantage of both types of income in retirement.