The only documentation I found online for it was to Arcgis Explorer. I suppose that it is also valid for arcmap, as the platform is similar to these two esri products.
From http://services.arcgisonline.com/arcgisexplorer500/help/cachemanagement.htm
There are two types of caching used by
ArcGIS Explorer: memory caching and
disk caching.
*Memory caching*
Memory caching refers to assigning an
amount of physical memory (RAM) for
use by ArcGIS Explorer. For optimum
performance you can set the amount of
memory assigned for each type of data
used. For example, if your 3D view
contains many elevation data sources
and very few 3D features, you can
allocate more RAM for the elevation
layers. Often an ArcGIS Explorer
document that is performing poorly can
become very interactive through well
defined memory cache settings.
Configuring the memory cache by data
type
Click the Tools menu and click
Options. Click Cache at the left of
the dialog box. Click Memory Cache.
Enter the memory allocation values, in
megabytes, for each memory type. The
current memory usage for each type,
and the percentage of its allocated
size, is detailed on the text box and
horizontal graph next to each item.
Click OK on the Options dialog box.
Tips
The total memory cache size is
automatically calculated as the sum of
the individual settings. Your total
memory cache size should not exceed
your physical memory (RAM). These
values will apply to all future ArcGIS
Explorer sessions, so you should
consider all the ArcGIS Explorer maps
you will be working with when defining
the memory cache settings. ArcGIS
Explorer will not automatically
balance the allocation of memory used
for each data type. If you allocate a
small amount of memory to a particular
data type and subsequently create a
document that uses that data type, it
will start paging the data well before
physical memory is exhausted. Disk
caching
Disk caching creates a temporary
directory or cache, for each layer in
ArcGIS Explorer that helps you display
and navigate your data efficiently. A
disk cache stores the data and
information that allows ArcGIS
Explorer to better manage your
environment by controlling levels of
detail. The status of a cache is on
demand. As you navigate your layers in
ArcGIS Explorer, the parts of the data
you zoom to are cached on demand to
disk. Revisiting these areas
subsequent times will be faster
because they are already cached. The
name of layer's disk cache is a
concatenation of its display name and
global unique identifer (GUID). Saving
the ArcGIS Explorer document or
creating a layer (.nmf) file will
ensure that the disk cache is not
inadvertently deleted, as well as
retain a link to the cache for future
use. When the display for a layer
changes, its disk cache is
automatically deleted and
recalculated. You can manually clear
the entire disk cache for a layer by
clicking Manage Layers on the Tools
menu; then select the layer and click
the Clear Layer Cache button.
When you add content to the map that
is not a globe service you'll be able
to control the kind of caching to
perform on the layer. The Disk Caching
Options dialog box of the Add Data
wizard allows you to choose what
caching scheme you want for the layer
you are adding. You can choose one of
three options: creating a cache for
the layer, creating a session cache
for the layer, or never caching the
data to disk. The last two options can
be augmented by refreshing the cache
during the session at a specified
interval.
