Clicking "cache" will cache the file(s) just like when you click play on it, and it will get a timestamp and get counted towards your total cache which is in settings, then the oldest files gets deleted once the cache is full and it needs to cache new things you want to play.
If flagged with "permanent cache" it never deletes, so if you have 10GB total cache selected, then have 2GB permanently cached, the "active" cache is reduced to 8GB which gets recycled, and then the other 2GB of things will always be on your phone. Permanently cached.