This game is ideally played one-on-one.  
Players sit on opposite ends of a table (preferably a dining room table or something that size). Each player has a coffee mug in front of them. You fill your mug half full of beer.  
You flip a cap and have someone call it in the air to see who shoots first.  
First person (eg. player A) tries to make a cap in the other persons (eg. player B) mug. Players then alternate shots.  
If player A misses, player B shoots. If player A makes it, player B gets a “rebudle” or attempt to “answer”. If player B misses, player B must drink and player A is rewarded a point. If the rubudle is made by player B, player A MUST make his next shot or he has to drink. It does not cancel out. This makes the “answer” to a made shot, that much more important. So basically, once a shot is made, first person to miss has to drink and the other person gets a point. 
After a point is made and the player drinks, he refills the mug halfway and player who made it last, shoots to resume the game.  
Games go to 7, and you have to win by 2. With the exception of a 4-0 game, which is a skunk. 
Misc. Rules… 
Shotguns – If you catch the cap after it deflects off the mug and it touches nothing else, you get a “shotgun” which is an extra shot you can use at anytime in the game. Cap must be caught with hands, and cannot hit any other body part or object. 
Half way – If you shoot and miss but the cap bounces back half way and stays on the table, you get another shot. If the cap passes the half way mark on the table then falls off, but you catch it before it hits anything, you get another shot. Must cross the halfway mark first.  
Make a cap while opponent is drinking – After a point is made, the player who made the point can shoot at the other persons cup as soon as they start drinking. If they do not cover the cup, or start to drink then get distracted and leave the cup open, you can shoot at it. This also applies to while the person fills their cup. If a cap is made at anytime after the player starts to drink (cup touches the lips) and before the cup is fully refilled, the player who is drinking must fill their cup, drink it and refill again with no point awarded. Score stays the same, the person who is drinking just has to drink more. 
(Thanks Josh!)