A simple example to illustrate how data can be cached in a Drupal application.

cache.php

<?php

// Fetch data from the database
function my_mod_fetch_from_db() {
  // Remember the number of dimensions of the static cache depends
  // on the number of parameters that this function can take.
  $cache = &drupal_static(__FUNCTION__, array());
  // Static cache miss
  if (!isset($cache) {
    // Check persistent cache
    $cached_item = cache_get(__FUNCTION__, 'cache');
    // Persistent cache miss
    if (!$cached_item) {
      // Fill 'er up from the DB.
      // Save in the static cache.
      $cache = db_query('SELECT id, data from {my_mod_table};')->fetchAllKeyed(0, 1);
      // Save in the persistent cache.
      cache_set(__FUNCTION__, 'cache', $cache, CACHE_PERMANENT);
    }
  }
  // Return
  return $cache;
}