Prior to Windows 7, to open a file across a slow network, client computers always retrieved the file from the server, even if the client computer had recently read the file. With Windows 7 transparent caching, client computers cache remote files more aggressively, reducing the number of times a client computer might have to retrieve the same data from a server.

With transparent caching, the first time a user opens a file in a shared folder, Windows 7 reads the file from the server and then stores it in a cache on the computer’s hard disk drive. The second and subsequent times a user reads the same file, Windows 7 retrieves the cached file from disk instead of reading it from the server. To provide data integrity, Windows 7 always contacts the server to ensure the cached copy is up-to-date. The cache is never accessed if the server is unavailable and updates to the file are always written directly to the server.

Transparent Caching is done by caching reads to remote files over a slow network in the Offline Files  (CSC) cache. Subsequent reads to the same file are then satisfied from the client (cache) after verifying the integrity of the cached copy, leading to improved end-user response times and decreased bandwidth consumption over the WAN links to the server.

Source: http://trycatch.be/blogs/roggenk/archive/2009/06/16/windows-7-offline-files-amp-folders-transparent-caching.aspx