Rephrasing:
This is used to increase the possibility to have more bricks on a server and the client may still receive and see them. In this case dodge the brick limit of 128k.
A dedicated server stores bricks on the HDD if it reaches the brick limit. HDD is still faster than an internet connection, so having a dedicated server with 1 Gbit/s upload wouldn't help if the HDD have 3Gbit/s(As I assume most dedicated servers have).
The client receive all bricks from the server. If it reached the brick limit, it caches it on the HDD depending on the distance from the client. If the limit is reached within a certain area, you are not allowed to build there. This area is the closest bricks in a radius from the brick you plant. When the client moves through the server, bricks that will be in sight are fetched from the HDD and those out of sight cached to the HDD.
This does also means that if you teleport from one place to an another, first time you will load the bricks. Next time it will also load the bricks, but do it a lot faster, or not even noticeable.
If this is made correctly, there wont be any problem causing you lag when caching or fetching bricks.
If there still are questions about this, notice me.