A word of caution: while hundreds of stories are being written up on this rumour, there is precisely one broadcasting source for the rumour itself: and that is Sky Italia.
Nevertheless, here it is.
Fabio Capello, who last year took charge of the Russian National Team (which has yet to qualify for the World Cup in 2014, though they are leading their group) will be released from his contract for 3 million Euros and will be PSG's coach after Andre Villas Boas refused to leave Tottenham.
The Guardian provides an English language summation of the rumour and the various transfer machinations it involved.
From Madrid's perspective, the angle is obvious. Carlo Ancelotti would be released from his role as coach and would be free for Real Madrid to sign on.