disability - A physical or mental incapacity, either congenital or resulting from an injury or illness etc.
incapacity - The state in which a person is no longer able to manage his or her affairs due to a physical or mental disability.

The difference between incapacity and disability in legal terms has defines by the World Health Organisation is :
Incapacity : the physical, mental or other deficiences. It is a fact. (不能听， 不能说，不能懂，不能行，等等)
Disability : the social and environmental consequences of the incapacity (ies). (不能工作，不能去买东西，等等)

There's a lot of chinese terms for incapacity and disability.
Now, PRC has officially adopted the WHO vocabulary (defined in 1980). So, they should use these terms in official publications.
In fact, all kind of vocabulary is still coexisting (残废 is still in use even if since 1978, maybe before, Chinese handicaped people asked to not use it.)

In Taiwan, they used other vocabulary (the second terms I wrote in the "Target term" field).

For incapaciy it should be as Beverly said (i.e. 能力丧失)

In Hong Kong they have also adopted some kind of international vpcabulary (i.e. conserve "人士" :

people with a disability 殘疾人士；弱能人士
permanent disability 永久傷殘
physical disability 肢體殘疾；肢體弱能；肢體傷殘
permanent incapacity 永久不能工作

You can have a look here :
http://www.zmc.edu.cn/bxjs/lcb/fyxjys/fylcx/第三章　临床法医学-劳动能力.p...

Or on other ressources mentionned below