A cache is a small amount of memory, holding recently accessed data, designed to speed up subsequent access to the same data. In the case of FarCry content management, a template cache is a fragment of HTML.
By holding these fragments in memory and putting them into the web page we can vastly improve the speed of the web pages delivery as we don't have to work out where all the content is coming from each and every time.
You can set up Template caches by adding the "cache" tag from the webskin library to sections of your projects display templates. Cache management is only relevant if you have these optional templating options in place.