The main mechanism of Cell capacity fade is the growth of SEI layer on anode. The intercalated in the negative electrode lithium moves into the SEI.
Thicker SEI increases cell's internal resistance, which practically decreases the capacity because of greater Cell overpotential after periods of charge or discharge and potential hysteresis(?) when the battery should be charged/discharged at a normal rate close to 1C.
The higher the temperature of the cell, the faster reactions occur and SEI grows, and, therefore, the cell degrades.
When the temperature is lower than 25 °C, Lithium plating can take over the growth of SEI layer on anode as the primary mechanism of capacity fade: see Lithium deposition overtakes the SEI growth as the leading capacity fade mechanism at 1C rate and 25 °C. Storing a cell at a high temperature and state-of-charge accelerates capacity fade.
Cell capacity fade accelerates when Lithium deposition becomes irreversible.
Another mechanism of cell capacity fade is side reactions during discharging: Lithium goes into permanent compounds instead of intercalating into the cathode.
Capacity fade is one of the outcomes of Cell degradation.
The reverse process is Cell capacity recovery during rest. Frequent rest recovers capacity and prolongs a cell's life.
Other examples of reverse capacity fade:
Global Model for Self-discharge and Capacity Fade in Lithium-ion Batteries Based on the Generalized Eyring Relationship (2018)