My Mac username is set to 'John', and I hate looking at the capital 'J' and would like to set it to 'john'. I see the advanced option in the Users & Groups settings, but I want to make sure that it won't break my setup? Do I need to rename my /Users/ folder? Would it break any programs depending on my home path?
Only if you are on a case sensitive filesystem (which OS X supports, but doesn't enable by default) and the program was coded poorly, would it capture the exact path to your home directory. The vast majority of programs use the proper manner to find files relative to your starting home folder and are immune to even more drastic name changes.
I say, back up your files and have a stab at changing the short name to your liking.
OSX uses a full name and an account name. You can easily change your full name under:
settings > users
but I am not sure if this solves your problem. Changing the account name (that is associated with your home folder) is more tricky. You can do it though. Apple has a page describing how to: http://support.apple.com/kb/HT1428?viewlocale=en_US&locale=en_US