External Cache Memory: Enabled if you have external cache memory (better known as L2 cache memory). This is a frequent error in CMOS setup as if Disabled when you have cache memory, the system performance decreases significantly. Most systems have from 64K to 512K of external cache. It is a cache between the CPU and the system bus. Different operating systems may address different levels of cache memory. For instance, DOS and Windows can address up to 64K at one time while Windows 95, OS/2 and Windows NT can address larger memory spaces. So, don't buy 256K of cache is you are using a DOS environment with less than 8MB of memory. It will not improve much the performance of your system. If Enabled when the system does not have cache memory, the system will freeze most of the time.
Internal Cache Memory: Enable or disable the internal cache memory of the CPU (better known as L1 cache memory). Disabled for 386 and Enabled for 486 (1 to 8KB of internal CPU cache). If the CPU does not have internal cache, the system may freeze if enabled.
In many AMI and AWARD BIOSes, the two previous options are implemented either as separate Internal and External Enable/Disable options, or as a single option (Cache Memory : Disabled/Internal/Both).