We investigate the deformation, dynamics and rheology of a single and a suspension of elastic capsules in inertial shear flow using high-fidelity particle-resolved simulations. For a single capsule in the shear flow, we elucidate the interplay of flow inertia and viscosity ratio, revealing the mechanism behind the stretching of capsule surface during tank-treading motion and the sign changes in normal stress differences with increasing inertia. When examining capsule suspensions, we thoroughly discuss the impact of volume fraction on average deformation, diffusion and rheology. Notably, we observe the formation of bridge structures due to hydrodynamic interactions, which enhance the inhomogeneity of the microstructure and alter the surface stress distribution within the suspension. We identify a critical Reynolds number range that marks the transition of capsule diffusion from non-inertial to inertial regimes. Furthermore, we reveal close connections between the behaviour of individual capsules and dense suspensions, particularly regarding capsule deformation and dynamics. Additionally, we propose multiple new empirical correlations for predicting the deformation factor of a single capsule and the relative viscosity of the suspension. These findings provide valuable insights into the complex behaviour of elastic capsules in inertial flows, informing the design of more accurate and efficient inertial microfluidic systems.