Recently I have been playing around with a simple gallery system built for Zend Framework and one of the things I wanted to do was to be able to dynamically generate watermarked images and thumbnails.
Because my images do not change if the date exists that means the browser already has a up-to-date copy of the image and there is no point in doing all the processing again. So after adding this code I found that my images started to get cached!
According to firebug this reduces the image request time by over half. If you have a PHP script that generates images I would very much recommend using this, not only to reduce loading times but to reduce the load on your server too.