This exercise is from the Theory Section on the CAGED system.

Here we solo over the simple chords from this Backing ActionTab:

C maj7 - A m7 - G major - E minor - D m7 - G major - C maj7 - G major (repeat)

We are soloing in the key of C major, and switching between the various CAGED positions for that scale. If you need to refresh yourself on the C major CAGED positions you can find them here.

Scales by themselves aren't very musical. Therefore it is important to learn ways of creating melodies from the CAGED scales. Notice in this ActionTab that we use a simple little lick, do a little solo, then return to the lick:

lick - solo - lick - solo - lick - solo

The little lick is just: G + B then E + G then D + F the first time, but each time we return to it later in the tune it is doubled up. No particular reason for that, it just sounds nice.

Notice how we use that lick as the central melody. Everything else revolves around it. Just play the lick, create a little solo, return to the lick, solo again, and so on. Each time we solo, we use different CAGED positions before returning to our little lick:

Solo 1: C position - A position - C position

Solo 2: E position

Solo 3: D position

This is just an example of a good way to use your CAGED knowledge. Practice the scales until you know them, then take the vital step of applying them over backing music. Make a little riff or lick, and use it as your melodic anchor - keep returning to it. But inbetween, switch to a different CAGED position and use the scale to create more intricate melodies on the spot.

It can be hard at first, but stick at it. Use only 3 notes per solo along just one string at the start if you want. It really doesn't matter how small you start, it always takes time until you get more skilled and comfortable switching between these CAGED positions.

When ready, go back to the Backing ActionTab. Loop it and work at creating your own melodies. Start slowly, even just by switching between scales as the backing chords change. Step it up once you have some confidence, and start working more on your melody. Use the Jamzone Scale Game articles for ideas on creating melodies from scales (e.g. this or this or others).