Cache memory is a small, fast memory located close to the processor that stores copies of frequently used and recently used data from main memory. When the processor needs to access data, it first checks the cache and if the data is present it can access it quickly from cache. If not present, it loads the data from main memory and stores a copy in cache for faster access next time. There are different types of caches like instruction cache for storing frequently used instructions and data cache for storing frequently used data.