This lesson explains where the CAGED system came from. It's important to realise that the CAGED system was not 'made up' by anyone, it is just the basic logic that follows the tuning and construction of the guitar!
This video should help you understand how it came about and how the irregular tuning of the 2nd string (B) makes it all possible...
So we start with good ol' E Chord.
We move it down toward the ground, which in these chord boxes is over to the right by one string. And when we do, we move the note on the second string up one fret (shown with the arrow) and you get our A Chord...
Now we'll move our A Shape over to the right, move the note on the second string up a fret... and we get D Shape! Note that we added the note F# to the thickest string (you know the two outside strings are the same note right, so we just copied the one off the thinnest string).
Now we'll move all that over again, move up the note on the second string and add a note on the thickest string - we got ourselves a G Chord. Note that we added the note G to the thickest string (we just copied the one off the thinnest string again).
Now to get to the C we use the most basic form of G Chord - just cos if we stick with the shape we got then you might not recognise the C Chord :) We'll move it over, move up the note on the second string and we got C Shape!!
Now when we move this one over to the right and move the note on the second string we get an F chord, which is just E Shape again but up one fret, and the cycle begins again!!
If I write all the chords in fret number, look at the numbers going diagonally down, left to right. Notice that they stay the same until they hit the 2nd string they go up a number? * with the exception on last note of of the C which doesn't follow the pattern because of the multiple choices of grip for the G chord.
E: 0 . 2 . 2 . 1 . 0 . 0 A: 0 . 0 . 2 . 2 . 2 . 0 D: 2 . 0 . 0 . 2 . 3 . 2 G: 3 . 2 . 0 . 0 . 3 . 3 C: 3 . 3 . 2 . 0 . 1 . 0 F: 1 . 3 . 3 . 2 . 1 . 1