Google Caffeine Indexing is basically a switch between a batch method of indexing to an incremental method of indexing. Previously Google was first crawl a webpage and then indexing it after crawling a few other (read billions of other) web pages. So, that was causing a huge latency between crawling and indexing a web page.
With Google Caffeine Indexing, spiders now crawl and index a webpage simultaneously so that the webpage is available at result pages when someone searches for a keyword similar to the topic of the webpage.