A client machine has an area called `the cache', where file system data stays temporarily. This cache is normally on disk, though in AFS at least it can be in virtual memory. The advantage of having all (or part) of your cache in memory is that, under optimal conditions, you can read files and directories faster than if they were on local disks. (The Linux buffer cache has something of the same effect.)
The cache needs to be big enough to hold the biggest file you wish to read or write, as well as some other data. So if I have a cache of 200mb, I won't be able to read a file larger than this. Coda documents recommend a cache of about 20mb, but I prefer to use a much larger one. It depends on the specific use you make of Coda. AFS and, I think, DFS allow you to cache only parts of a large file, and so get round the size limitation, though with some problems.
A local process called the cache manager manages the data in the cache; on Coda clients it is named `venus'.