It does more than that - I use them for a few sites.
Aside from site caching, it does also deliver the cached content globally from their various data centers placed around the world. This in turn, speeds up the site response time for those farther away from your server in terms of hops by reducing them. Also, by using them, you get some advantage of them presenting a challenge page to various IP's which are deemed as tied to questionable sources. If the traffic source isn't a bot, then a captcha lets them through. See this as an example:
One downside to using them if you are serious about hosting is to get the benefit of using their services, you have to switch your domain's DNS pointers to theirs. This creates a whois entry showing your domain pointing to something like jake.ns.cloudflare.com and gina.ns.cloudflare.com instead of your host's ns1.foobar.com and ns2.foobar.com type of pointer. So, if you ever have an issue with your host's server for whatever reason and talk to them, a lot will immediately blame it on cloudflare first.
I have about 50% of my sites running through them. My main hosting, an e-commerce store I host and a couple of others I don't. My hosting site, I prefer to use my own nameservers for a more professional and trusted appearance if a customer should whois my site. E-Commerce site sort of dies with cloudflare's script minimization features. And the others, are basically clients which don't want to be on cloudflare's networks for their own reasons.
For a free service (You can upgrade for more features), they are a very good and don't seem to have many issues. When changing IP's for sites (If you change a server or web host), it is a simple matter of going into your site's control panel there and changing the ip. Within roughly 10 minutes the site is already pointing to the new server. A BIG plus, if you are trying to avoid the DNS migration which can take up to 72 hours since most ISP's and DNS providers cache their own pointer to your site for 24 hours worldwide. Since your DNS stays with cloudflare, no migration needed.