Content Delivery Network

Caching (like the plugin) stores a static representation of your database driven website so that the site loads faster. Your wordpress site actually lives in a mySql database. Every time a visitor comes to the site it has to be reconstructed from the database. This puts a heavy load on the server if you have a popular site. Caching saves a completed version of the site that can be loaded without hitting the database. The cache is the refreshed at regular intervals to keep it current.

A content delivery network (CDN) works by caching rarely changed files on a high speed network that may or may not also distribute the cache to multiple points across the world allowing the files to load faster.

Put into a real world example, if I have a site with a 1mbps bandwidth, all of my text and graphics might load fine. If I add a video to that site, the video will not be able to stream smoothly with the low bandwidth. To fix this I move the video over to a high speed CDN. Once the video is on the CDN it will stream at a higher higher speed (say 250mbps) while the rest of my site loads just fine.

Rather than paying for the extra pipe for my entire site, I only pay for it where its needed.

I hope that made sense...

I havent used that caching plugin, but generally when you install you have to set the permissions of the storage folder to 755. Whatever folder you set permissions to 755 is where its stored.