Action caching is similar to page caching by the fact that the entire output of the response is cached, but unlike page caching, every request still goes through the Action Pack. The key benefit of this is that filters are run before the cache is served, which allows for authentication and other restrictions on whether someone is allowed to see the cache. Example:

class ListsController < ApplicationController
  before_filter :authenticate, :except => :public
  caches_page   :public
  caches_action :show, :feed
end

In this example, the public action doesn’t require authentication, so it’s possible to use the faster page caching method. But both the show and feed action are to be shielded behind the authenticate filter, so we need to implement those as action caches.

Action caching internally uses the fragment caching and an around filter to do the job. The fragment cache is named according to both the current host and the path. So a page that is accessed at david.somewhere.com/lists/show/1 will result in a fragment named “david.somewhere.com/lists/show/1”. This allows the cacher to differentiate between “david.somewhere.com/lists/” and “jamis.somewhere.com/lists/” – which is a helpful way of assisting the subdomain-as-account-key pattern.

Different representations of the same resource, e.g. http://david.somewhere.com/lists and http://david.somewhere.com/lists.xml are treated like separate requests and so are cached separately. Keep in mind when expiring an action cache that :action => 'lists' is not the same as :action => 'list', :format => :xml.

Namespace
Methods
E
P
Instance Public methods
expire_action(options = {})

Source: show 

# File rails/actionpack/lib/action_controller/caching.rb, line 188
def expire_action(options = {})
  return unless perform_caching
  if options[:action].is_a?(Array)
    options[:action].dup.each do |action|
      expire_fragment(ActionCachePath.path_for(self, options.merge({ :action => action })))
    end
  else
    expire_fragment(ActionCachePath.path_for(self, options))
  end
end
protected_instance_variables_with_action_caching()

Source: show 

# File rails/actionpack/lib/action_controller/caching.rb, line 173
def protected_instance_variables_with_action_caching
  protected_instance_variables_without_action_caching + %w(@action_cache_path)
end