lemme clear you with simple but effective example.
consider yourself getting a book from library, as whe u return the book, say the librarian has got a small shelf right beneath/beside his main desk, where hottest titles are placed (say 10 books). the librarian has very quick access to it. as if you'll ask for a book, librarian will first see this shelf, (this is L1 cache),
and an other slightly bigger book shelf holding 50 books is beside that small shelf, after looking into that small shelf, librarian will go to that bigger book shelf, (that is L2 cache), and if didnt found there, he'll go to main shelves, which you can further catagorize as RAM and Hard Drive etc.
Intel Core2Quad 2.66Ghz 12MB L2-Cache
4096MB DDR Kingston Hyper-X
XFX 9600GT AlphaDog
Seagate 2 X 320GB SATA2
LG L246WH Flatron 24"