It's still caching because your servers are only serving a small portion of the data that's changed between requests. But it's very nice that they're now taking on all of the customer requests, reducing your exposure to DDoS's dramatically.

The whole 'freeing you up to serve more requests' thing is not accurate: your app servers run as fast as they can and your frontend proxies deal with handing the data to the client, so your app servers are (or should be) always doing as many requests as they can. If anything, the reduced latency and caching will allow more connections than usual to come in, putting more potential load on your app servers. Catch-22 =)

"This means that each of your app server instances spends less time waiting for it's client to send or receive data and more time serving app requests. It's why people put Nginx in front of Apache."

Sounds silly to me. Putting a proxy in front of a proxy doesn't change the tcp/ip stack. If you tuned your network stack and Apache properly it should be able to handle anything you throw at it. I don't remember what the setting was, but modern versions of Apache should be able to only send a request to the app server once the client has finished its request to the frontend.