The 0.1uF capacitor from the reset pin is connected to the RTS pin on the mini USB adaptor. This enables auto-reset when the serial port is opened, meaning you don't have to press the reset button every time you upload new code. If it gives you problems, you can remove it, and press reset every time.
What a capacitor does is to turn a change in DC level into a pulse. So when the DTR pin changes ( not the RTS ) there is a quick pulse on the reset line. Without the capacitor the reset line would be held permanent in a reset state and would not run.
Without the capacitor the reset line would be held off and the program will try to run.