If you capture a ship, it is either a pirated ship or a legal prize. It is legal if you have a Letter of Marque or you are a naval officer, and the ship was captured from an enemy. If you have no Letter of Marque and are not a naval officer, or you captured the wrong ship, it is an act of piracy.
When you sell the ship, you will see "Auction Prize Ship" if you captured the ship legally, or "Sell Pirated Ship" if you captured it illegally, or "Sell Owned Ship" if you bought the ship or if it is the ship you had at the start of the game.
When you sell the ship, you will see "Auction Prize Ship" if you captured the ship legally, or "Sell Pirated Ship" if you captured it illegally, or "Sell Owned Ship" if you bought the ship or if it is the ship you had at the start of the game.