What makes a ship a ship and a boat a boat, goes the old nautical joke. The answer of course is that 'ships can carry boats.' It's deliberately vague, similar to how ship classification has been vague and nebulous in history. The USS Zumwalt, a modern Destroyer, displaces as much as a Baltimore-class Heavy Cruiser from WW2, which is itself almost 100ft longer than HMS Dreadnought, the eponymous Battleship that revolutionized naval warfare in 1906. Fortunately here on Star Wars we have the handy Anaxes War College system, detailed below (slightly modified for SWRP: Chaos).
50-200m: Corvette
200-500m: Frigate
500-1000m: Cruiser
1000-2000m: Destroyer
2k-5k: Battlecruiser
5k+: Dreadnought
Star Wars canon terms anything corvette or larger a 'capital ship.' This is bollocks, don't do it. Instead use the following three or four broad categories.
Corvette/Frigate - Escort
Cruiser - Cruiser
Destroyer/Battlecruiser - Capital Ship
Dreadnought - Supercapital Ship
But what does all that mean?
Ship classification in the real exists as it does for a variety of reasons, including old traditions, logistical realities, and specific capabilities, and national trends. It's also largely all stuff that has no equivalent or bearing in Star Wars. Historically Cruisers were so named because they were quick and could operate totally independently for long periods of time. On Chaos, it's purely a size comparison, and the logistics element is totally useless, nobody has ever cared about consumables ever, much less resupply.
We do however, have a basic set of assumptions when it comes to ship classes. These are not set in stone, exceptions exist. The first of these assumptions necessarily governs the other three.
1. Smaller ships generate less power, or otherwise have less capable reactors, than larger ships.
2. Smaller ships are faster than larger ships.
3. Smaller ships are structurally weaker than larger ships.
4. Smaller ships have less firepower (or excess power to use on weapons) than larger ships.
Without these assumptions the entire basis for having larger ships falls apart. Without these assumptions, the only effective fleet is one that consists entirely of the smallest possible vessel that can effectively defend itself and engage enemy ships. Otherwise you're just wasting resources and time on the larger ships.
Strike Craft (fighters/bombers/etc) DELIBERATELY circumvent this. They throw a wrench into the works, largely to give small ships a purpose and keep things as close to WW2-style naval warfare as possible. See for some reason big ships have a problem tracking and destroying 'small, one-man fighters,' but a smaller ship armed with smaller weapons can deal with them no problem. Or, of course, you can juts bring your own small one man fighters to the game, but now you need a way to get them there. That's carriers of course, but space used to store strike craft is space not used for power, armor, or weapons, which means these are big ships that very very vulnerable to other big ships.
All of a sudden we have a nice little rock paper scissors triangle of weapons for space warfare. Big Ships > Little Ships > Fighters > Big Ships
So we kinda get an idea of what each general classification GENERALLY does.
  • Corvettes: Quick and maneuverable, load them up with anti-fighter guns and the have a serious advantage against smaller craft. Generally weak to larger ships, as they can't take much punishment and can't dish much out, unless you specifically equip them with anti-capital ship weapons.
  • Frigate: Frigates are the most common type of warship, able to perform a lot of tasks if used in small groups. A general purpose frigate (with a decent mix of capital guns and smaller emplacements) can engage strike craft, ward of frigates, and pose a threat to capital ships. Specialized frigates can perform almost any role OK, though they don't necessarily excel at it.
Escorts are generally used to 'screen' in front of larger ships to help guard them against waves of incoming strike craft. Alternatively they can make hit and run strikes against formations of larger vessels and try and disrupt their cohesion, relying on their speed and comparatively small size to protect themselves.
  • Light/Medium Cruiser: The mid-sized warship that is generally considered a jack of all trades. They can take a beating (but not as much as a destroyer), they're fast (but not normally as quick as an escort). Rarely have a large hanger or really heavy hitting weapons.
  • Heavy/Assault Cruiser: Pocket Star Destroyers, all the armor and weapons and usually little in the way of speed. Often used by minor factions or new majors that don't have the resources to mass produce larger vessels (or they think ISD's are just impractical, not a totally wrong argument).
Cruisers can fit in almost any situation but are particularly good at killing escorts and then providing assistance int he main battle.
At this point you may read all this and think... "But... why Star Destroyers?"
Because they look like goddamn cool giant knives in space, duh. Besides that, because they're the ultimate example of force projection. Half carrier, they sport an air wing that's a credible threat to most other vessels. Also large battleships, they MUST be confronted with similarly-sized ships, or swarms of smaller ones, or the careful application of airpower. The Rebel Alliance tended to run with the latter, and even the New Republic never really bought into the full-size destroyer game, preferring specialized cruisers and smaller destroyers.
Again, given the assumptions of smaller ships vs larger ships above, it's really important to note that your AVERAGE cruiser is in a very bad spot when faced with your AVERAGE star destroyer. This isn't far fetched at all, real-world navies have faced similar situations. In 1942 during the Solomon Islands campaign the US sent a force of cruisers (and escorts) to engage two Japanese battleships (and escorts) coming to bombard the Marine positions on Guadalcanal. None of the US ships had an armament that could reliably damage the battleships. The US lost three cruisers and two Admirals in that fight, but turned the attackers back just long enough for reinforcements to arrive a couple nights later.
That's how much of a threat battleships were, that despite superior air power (which did sink one of the damaged battleships the following day) the US was forced to throw away ships just to try and mitigate damage. That said, they're not invulnerable, and of course on Chaos there's a lot of wiggle room as far as power levels go, what with unique ships up against mass production ones and such, and that's fine too, it's thematic and interesting and keeps with Star Wars lore anyway.
A lot of EU material helps to reinforce the notion that Star Destroyers are useless, unfortunately. They would have you believe that a squadron of X-Wing's is more than enough to make any Imperial captain shake in his boots. This is frustrating to deal with as the mentality often translates to certain assumptions in writing. It's also a misnomer. Historically, though battleships are very vulnerable to air attacks (as the sinking of the Repulse and Prince of Wales demonstrated in '42, and then was re-verified by the the sinking of the Yamato in '45) they're still very tough, requiring concentrated attacks typically over the course of several hours by dozens or hundreds of aircraft. Even then, most Star Destroyers are carriers to some degree themselves. It's difficult to drop a torpedo down just the right firing bearing when enemy fighters are shooting at you, as demonstrated during the first death star run.
The tl;dr here is that Star Destroyers should and do make sense in the context of Star Wars, and the tendancy of some EU writers to wave them off as evidence of Imperial decadence and wastes of resources is disappointing and smacks of ignorance. But just because they are effective and worthwhile doesn't mean they're the end all be all of warships.
Idk really, i found this half written and I don't remember the context but I figured may as well put something up.