The caterpillar sign looks like a little caterpillar inching along a branch. Take your non-dominant hand and lay it flat with the palm down (or in a fist). Take your index finger from your dominant hand, then inch it along the stationary non-dominant hand, while the rest of the dominant fingers are curved into a fist.
Caterpillar is a fun sign for children to perform. Find a caterpillar outside on a leaf to show your baby the sign, or introduce the sign using a children's book (e.g. Eric Carle's "The Very Hungry Caterpillar").
You can teach your baby to sign caterpillar when doing discovery walks outdoors. You can also teach it when reading storybooks.