I'm recreating a Character Sheet for an RPG, but it might as well be a form. In the original sheet I notice that all the text is in capital letters. At first I thought it was in small-caps, but it isn't, it is in full capitals. It has the same letter height all the way through. Is this a good or a bad example of design? Should all caps be used for certain types of heading?
All caps is a common and always acceptable setting for headlines, titles, main heads and even subheads in some cases. Form field labels are titles, and uppercase works fine.
In your example, the uppercase enhances the clean look of the form, helps to quiet the page and creates crisp little rectangles that help guide the eye. Using title case would be okay, but the form would definitely look busier and the labels would lose the air of authority that helps make the page feel organized, so in this case I would say the choice of uppercase is appropriate. Note the designer's good choice of point size and weight: small enough not to crowd the space between the rules (just about lowercase/small cap size, in fact), bold enough to have authority.
Setting text in caps conveys importance or emphasis, similarly to italics, boldface and underscore. It speaks, you might say, with a louder voice. That's why, in the netiquette advice columns, you'll see it referred to as the net equivalent of shouting. (Back in the ASCII-only days, we didn't have sissy text frippery like bold or italic, so SHOUTING was the only practical way to tick everyone off.) So, while you wouldn't set paragraph text in uppercase (or all small caps -- same thing), there's nothing wrong with using it where you need a stronger voice on the page.
All caps are certainly OK. The key is to use them sparingly rather as the norm. Use them for contrast.
As text headings? That could work. For setting pages of a novel? Avoid that.
Yes there are times when all caps is acceptable. It is a tool like any other - how you use it is entirely up to you in deciding whether it works or not.
For me I use all caps or drop caps pretty rarely but when I do it is usually to account for line spacing allowing me to use a smaller gap especially if say I have three lines of text and line one has no descenders but line two does. I could only space it evenly by accounting for those descenders so using capital letters is a way around that.
People avoid all-caps because it's bad for readability (easy fast reading). Native readers recognise words as units in parallel to recognising letters, and using all caps (which are less familiar) disrupts that.
So - should designers maximise readability? Normally, yes, but occasionally there are good reasons to make a careful tradeoff.
Capital letters are usually fine for legibility (people being able to see clearly and unambiguously what each letter is), and sometimes they are actually better for legibility (e.g. at small sizes in many fonts). One example of a case where choosing all caps is a legitimate good design decision is if you have a reason for forcing slightly slower, more effortful reading. Part of the reason someone typing something like PAY ATTENTION in all capitals feels so in-your-face is that it genuinely forces you to use slightly more direct attention and expend slightly more energy processing that text - usually a bad thing, definitely not something to overdo, but occasionally useful.
Other possible benefits are contrast, and consistency of height, shape and colour (colour in the typographic sense meaning the effect of lightness or darkness given by the density of the text). This seems to be the benefit gained by using caps in the form you link to: the perfectly consistent short lines of caps of the labels will contrast sharply and nicely with the presumably mixed case, inconsistent, freeform handwriting written on the printed forms.
The important thing is, with any design decision, be aware of what you are sacrificing (readability), how big a deal that is in this case (somewhat but not very for one-word labels) and what you are gaining (which depending on the context could be small gains in legibility, reader focus, contrast, consistency, or could be nothing at all): and why you are making that trade-off in this case.