Command to uppercase the first letter of each word in a sentence

\documentclass{article}
\usepackage{makeidx}\makeindex
\newcommand*{\formatfirst}[1]{\MakeUppercase{#1}}
\makeatletter
\newcommand*{\mymacro}[1]{%
  \expandafter\formatfirst\expandafter{\@car #1\@empty\@nil}%
  \@cdr #1\@empty\@nil}
\newcommand*\myMakeUpperCase[1]{%
  \def\@myuppercasewords{\myuppercase@i#1 \@nil}%
    {\itshape\@myuppercasewords}\index{#1@\@myuppercasewords}}
\def\myuppercase@i#1 #2\@nil{%
  \mymacro{#1}%
  \ifx\\#2\\%
  \else
    \@ReturnAfterFi{%
      \space
      \myuppercase@i#2\@nil
    }%
  \fi} 
\long\def\@ReturnAfterFi#1\fi{\fi#1} 
\makeatother

\begin{document}
foo
\myMakeUpperCase{capital letter} bar
\myMakeUpperCase{Next one} baz
\myMakeUpperCase{two words}

\printindex

\end{document} 

The mfirstuc package from the glossaries bundle provides the handy \capitalisewords command which could be used here. I adapted Herbert's example and the output is the same:

\documentclass{article}

\usepackage{mfirstuc}
\usepackage{makeidx}\makeindex

\makeatletter
\newcommand*\define[1]{%
  \textit{#1}%
  \index{#1@\protect\capitalisewords{#1}}%
   }
\makeatother

\begin{document}
foo
\define{capital letter} bar
\define{Next one} baz
\define{two words}

\printindex

\end{document}

I am not sure if I understand your question correctly, but a short macro as shown below, will capitalize the first word you type and place it in the index.

\documentclass[11pt]{article} 
\usepackage{index}
\makeindex
\begin{document}
\def\Index#1{\def\x##1##2{\MakeUppercase{##1}{##2}}\textit{\x#1} \index{\x#1}} 
\Index{alpha}

\def\indeX#1#2{\def\x##1##2{\MakeUppercase{##1}{##2}}\x#1 \index{\x#2}} 
\Index{alpha}

\indeX{test}{this}

\printindex
\end{document}