Varnish is a reverse proxy cache that can make eZ Publish sites faster by caching pages, assets, and database queries. It handles caching on the reverse proxy level by checking requests for cache hits and fetching content from the web server only on misses. Configuring Varnish involves writing VCL configuration files to define caching rules and purge mechanisms. Integrating it with eZ Publish also requires customizations and extensions to leverage caching and purging features. Proper configuration of caching rules, TTLs, and purge handling is needed to optimize performance.