Cache means saving content on websites such as images on your hard disk so that when you visit a website you have already visited, you dont need to download the contents again over the internet. This speeds up the time it takes to load the website and reduces network load and server load of the website since the files are retrieved from your own hard disk.

I'd recommend using automatic cache management, but you can set the cache size to whatever you like yourself.

Of course the more space you allot for the cache, the more content is stored locally on your own hard disk.

Yes, in the absence of any response to my query for a while, I experimented with both automatic cache management as well as by setting to 100 Mb. Auto-mgmt used up almost 1Gb of HDD space, while setting it to 100 Mb increased my internet usage (yes, mine is a usage-based not time-based internet a/c). Hence, have reverted to auto-mgmt of cache as I have plenty of HDD space to spare. However, this option seemed to slow down surfing.

see for more info: Browser.cache.memory.capacity you must create it.

also you can read from: http://www.tweakguides.com/Firefox_10.html

"browser.cache.memory.capacity [Integer] *Create - This setting determines whether Firefox uses system RAM to cache data, improving performance. A value of 0 turns off caching into RAM, which is not recommended as it can slow down browsing. The default value of -1 tells Firefox to automatically determine the size of the cache based on your physical RAM. Systems with 512MB of RAM will result in a 14MB cache, 1GB of RAM results in a 18MB cache, 2GB of RAM gives 24MB of cache, and 4GB of RAM or higher results in 32MB of RAM cache. You can check the amount of RAM being used on your system by typing about:cache?device=memory into the Address Bar and pressing Enter, then checking the value in the 'Maximum storage size' field. The default of -1 should be fine for all people, but if you notice Firefox increasing its memory usage for no apparent reason, you can manually restrict this value to a particular amount by entering a value in KB (e.g. a value of 18432 =18MB)."

thank you

Thanks @ideato. Checked that FF12 is using 32Mb cache while I have 8Gb physical RAM. Have not tinkered with any settings within FF as suggested. Will manage with current settings which seems fine for now.

Thats strange that it slows down surfing, have you tried defragmenting your hard disk?

Yes, done that too. It's also scheduled to run monthly. Am continuing with current (Automatic cache mgmt) settings as I can bear slower surfing but can't let my internet bill shoot up. It's a trade off I can live with.