Caching is a technique that stores frequently used data in memory to retrieve it faster than generating it from an application. In ASP.NET, caching places data in memory using the cache object which is a key-value store available via HttpContext. There are different types of caching including page caching, which caches entire page output to serve faster; page fragment caching, which caches parts of pages like user controls; and data caching, which caches application data to improve performance by reducing database calls.