Cache memory is a small, high-speed memory located between the CPU and main memory that stores frequently accessed data. It improves performance by allowing the CPU to access data more quickly than from main memory. There are three levels of cache memory - L1 cache is the fastest and closest to the CPU, typically ranging from 8-64KB in size. L2 cache is larger but slower than L1, acting as a buffer between L1 and main memory. L3 cache is the largest but slowest cache, built into the motherboard to feed the L2 cache and act as a buffer between L2 and main memory, typically having over 3MB of storage.