Distributed caching improves the performance and scalability of your Web API by storing frequently accessed data in a distributed cache store, such as Redis or Memcached. In ASP.NET Core, you can implement distributed caching by using the IDistributedCache interface and a caching provider. By storing data in the cache and retrieving it when needed, you can avoid costly database or external API calls for the same data. Distributed caching helps reduce latency, improve throughput, and handle increased load in your Web API.