First the history file. The default color for a clickable link is blue. Once you've clicked on it and visited the link, it's purple. While the colors may be different depending on what is specified in the HTML, the way your browser keeps track of this information is via the history file. Since the default is 30 days to expire a link, typically you can see the last 30 days worth of web surfing by examining the history file.
Bookmarks are a problem for the same reason the history file is a problem.
It shows what sites you are regularly looking at. The info gained from here can also be used for social engineering purposes, and can be quite useful. For example, you could determine the user was interested in aquariums and rare fish. This information could be used to assist in guessing a password. The cache is your browser's way of making things a little easier on your access time, the server your accessing, and the network in general.