They cache web pages, and storage is pretty cheap compared to bandwidth. It speeds up dial-up requests (though more sites using PNGs would do as well), and whatever proxy mess they do with it has caused problems with games since the beginning of time--er, Starcraft :). I don't know about now, but it also used to make updated web pages an act in frustration.

Web pages that are hardly ever hit don't get cached. However, by now they probably have a 'smart' system that will cache parts as you go there, messing up such places as Litestep.net.