Capello addressed the media on Friday for the first time since naming his 23-man World Cup squad.
Speaking from the Three Lions' South African training base in Rustenburg, he conceded that making his final selections proved very difficult.
Among those to be given bad news was Walcott, who missed out despite featuring in both warm-up matches against Mexico and Japan.
His performances in those fixtures did little to inspire confidence, but it was still widely expected that he would make the cut.
Capello admits he had to think long and hard before deciding to leave out the Arsenal forward, but he believes injuries have taken a toll on the former Southampton star.
"It was a really hard decision for me," he said.
"I know Theo Walcott was really important in the games we played in qualification. But after his operation on his shoulder he did not play a lot of games. He was not the same player we knew before the injury.
"I hope that he will be fit and over injury and he will be back in the team for the other qualifiers (Euro 2012). It was hard for me, but we had to choose the best players for the squad."
Walcott had been hoping to benefit from David Beckham's absence this summer, with the former national skipper ruled out of World Cup action with an Achilles injury.
He is, however, still part of the England set-up, with Capello keen to have him around the camp to help raise morale and give important input from a players perspective when required.
"He is not a coach," said Capello on Beckham's role.
"He trained and it is important to have him because he is a symbol of England. He did not want to go on holiday, he wanted to stay with us.
"He will be important for the other players. He is part of my team, but he is not a coach."
Capello has also claimed that England are capable of ending a 44-year wait for a major international trophy this year, with the Italian of the opinion that his squad is ready to fulfil their potential
He added: "I think this team is really good. The players are high on confidence and I don't know why we can't win the World Cup.
"I know the other teams are strong, and we need to be lucky, but I think we are one of the best teams. The confidence will be vital and the recovery after a long Premier League season."