When you go to a bluegrass jam, a lot of times you'll hear the chords to a song being called out not as G, C, or D or A, D, and E but as I (one), IV (four), V (five). This is called the "Nashville Numbering System" and it's a very useful way of refering to the chords in a song by their position relative to the root or key.

Let's start with a song in the key of G and call that the I. When the chord changes to the C, the Nashville Number is IV because C is the fourth note in the G scale. Then we might drop back down the G (I) again before changing to the D or V (fifth note in the G scale). We'd call this progression a I-IV-I-V progression.

Well, you ask, why not just say it's a G-C-G-D progression? The issue comes when the key changes. Let's bump the key up to A. A bluegrass guitar or banjo player is going to want to put his or her capo on the second fret and play out of that same G chord shape in order to get the full sound of the open strings (and to keep access to all those hot licks). When that happens, we're still playing a I-IV-I-V chord progression.

Suck it up, you say. You know A, D, and E chord shapes, just play those. Well, while they might not quite have the bluegrass sound we're going for, you're right... until we bump the key up to Bb. Quick, rattle off the IV and V chords of Bb. Too slow. Or maybe you know they're Eb and F but watch as the steam starts coming out of the banjo player's ears when you ask him to play the Blueridge Cabin Home kick he learned note for note from JD in Bb without a capo. When he plays that he's thinking I-IV-V out of a G position, not Bb-Eb-F.

Have a look at the video below for a demo of a I-IV-I-V guitar progression played out of a G shape and the Nashville Numbers for each chord shape.



Once we move beyond Bb and B up to C, you're typically going to see people shift to using a C position. In this case, the I-IV-I-V progression is played using the C-F-C-G chord shapes. Demo below...



Songs in the key of D could be played out of the C position capoed at the second fret or out of an open D position. Starting from a D, a I-IV-I-V progression would be played using D-G-D-A chord shapes. Demo below...



So the long and short anwser of it is that while it may seem that the Nashville Numbering System was created to make guitar and banjo players lives easier, a relative approach to chord changes can be applied to all bluegrass instruments. If you can read a guitar player's chords, you can follow the progression of the song no matter what key. When thay make that G shape as the first chord of the song, it's like they're yelling out "I'm on the I!"