Can I use a Time Capsule to share internet connection? My internet provider limits the number of connected devices to two. I would like to know whether I can use a Time Capsule to share my signal with all other devices in my house?
Yes, you can use either the Ethernet ports or WiFi (or both) to allow a Time Capsule to act as a router and share out your connection. Your ISP will, if you set it up in the default manner, have no way of knowing how many devices you have connected using the Time Capsule.

Internally a Time Capsule is actually an AirPort Base Station with a hard drive attached so it makes a great router and WiFi base station. Just connect the Time Capsule to your modem/router using the WAN port on the Time Capsule.