I think I would have put the capacitor across the NTC, but no matter.
I guess your fluctuation is from external noise that is getting into the MCU through the A/D converter. Adding the capacitor bypasses or filters the noise out of the way. Since temperature changes slowly a low pass filter is needed on the temperature sensor to block high frequency noise. The capacitor is doing this.
There are two ways to reduce unwanted noise in a system. One is to stop the noise getting in to begin with. The second is to filter out the noise that makes it through.
To stop the noise getting in you need to know and identify what the possible sources are and use good design to eliminate them.
To filter the noise you can use various filter arrangements, but an RC filter is the simplest.