Use of C1 in Arduino Mega schematics?
By looking at the ATmega datasheet, the reset is active low. My best guess is that the capacitor there serves to force a reset every time the power supply goes on.

On turn-on, the reset is pulled down to GND until the cap is fully charged.

Once the cap is charged, reset is pulled high through the resistor.

As pointed out by @JRE, the diode in parallel to the resistor serves as a path to quickly discharge the capacitor when the voltage drops.