In most arduino builds the reset is pulled high with a pullup-resistor, so it doesn't reset. If a new sketch gets uploaded, DTR is going LOW, making the RESET pin go LOW as well. As far as I understand, the DTR pin is LOW for a certain amount of time, which is too long for the RESET pulse of the arduino: the RESET pin has to be pulled HIGH in a shorter time than DTR goes HIGH again. To accomplish this a capacitor is added between RESET and DTR, the capacitor charges (through the pull-up resistor) and reaches +5V again in about the right time for the arduino to see the signal as a RESET signal. As soon as DTR goes HIGH again the capacitor is discharged and is ready for the next RESET signal from DTR.