What Is Varnish Cache
Simply said, Varnish is a client side proxy server.
How It Works
Web Requests on a Server Without Varnish
Web Requests on a Server With Varnish
Web requests will most often produce the same repeated response. In which case the response should be cached and servered quickly without consuming additional resources. In the case that a response has not been cached, the request is allowed to pass through to necessary resources in order to produce a cacheable response.
Using Varnish with Magento
Figure above shows considerable performance benefit with Varnish installed on webserver. Hence we strongly recommend Varnish for Magento.