The seller guarantees a minimum payout each year and in return caps each year's payout. Some pension products have carried guarantees of this form. Each period's payoff can be expressed as a combination of forward-start options struck at the price at the start of the period.
Consider a hypothetical example in which the per-period cap is 5%, the floor is 0%, and the returns over four periods are +4%, +6%, +3%, and +8%. After the cap and floor they become 4%, 5%, 3%, and 5%, for a total of 17%. If the overall cap is 10%, the holder receives 10% of the notional. A fall in a period is stopped at 0%, but a rise in a period is also cut by the per-period cap, so the payoff can be smaller than the return over the whole term.
The valuation depends on the shape of future volatility, so even a model fitted to vanilla option prices does not necessarily give a close value.