We investigate the capacity of a broadcast channel with a multi-antenna base station (BS) sending independent messages to multiple users, aided by IRSs with N elements. In particular, both the distributed and centralized IRS deployment architectures are considered. Regarding the distributed IRS, the N IRS elements form multiple IRSs and each of them is installed near a user cluster; while for the centralized IRS, all IRS elements are located in the vicinity of the BS. To draw essential insights, we first derive the maximum capacity achieved by the distributed IRS and centralized IRS, respectively, under the assumption of line-of-sight propagation and homogeneous channel setups. By capturing the fundamental tradeoff between the spatial multiplexing gain and passive beamforming gain, we rigourously prove that the capacity of the distributed IRS is higher than that of the centralized IRS provided that the total number of IRS elements is above a threshold. Motivated by the superiority of the distributed IRS, we then focus on the transmission and element allocation design under the distributed IRS. By exploiting the user channel correlation of intra-clusters and inter-clusters, an efficient hybrid multiple access scheme relying on both spatial and time domains is proposed to fully exploit both the passive beamforming gain and spatial DoF. Moreover, the IRS element allocation problem is investigated for the objectives of sum-rate maximization and minimum user rate maximization, respectively. Finally, extensive numerical results are provided to validate our theoretical finding and also to unveil the effectiveness of the distributed IRS for improving the system capacity under various system setups.