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Quick answer: "A memory cache that is a smaller and faster memory (compared to RAM memory) which is used to reduce the communication bottleneck between the CPU and other devices in the system. L1 cache is usually built into the actual microprocessor chip, while L2 is installed on a separate chip."
As you might know, modern computers are limited by a communication bottleneck between the CPU (central processing unit) and the other components in the motherboard. This type of communication is handled by the system front-side bus (FSB), which acts as the primary interface between the microprocessor and other devices in the system. As a matter of fact, the system bus speed is the single most determinant aspect in the actual speed of the computer, while running applications. Since hardware developers haven't found a way to make the FSB significantly faster, they have been using alternate strategies to overcome this limitation, which involves using memory caches.
In simple terms, a memory cache is made of a significantly faster memory than normal system memory. Additionally, cache memory is built in the actual CPU (L1 cache) or just next to it, on a separate chip (L2 cache); this allows a drastic performance improvement after an application is running, since the data it needs to keep running is stored on the cache, which may allow the application to benefit from the full speed of the processor (without being limited by the speed of the FSB). This also explains how a computer with comparatively slower microprocessor can actually run certain applications faster than another computer with a faster CPU, depending on the FSB speed available in each system.
Since cache memory is quite expensive, it's usually reserved for specific operations that allow the processor to run at optimum levels, without being slowed down by data exchanges to other devices in the system; in other words, it's not possible using cache memory to replace actual system memory. L2 cache usually performs at least twice faster than normal system memory (RAM), while L1 cache normally runs at the same frequency as the processor it's built into. Also, cache memory featured in modern computers is only a few megabytes in size, compared to the gigabytes which are fairly common in RAM memory.
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