... if I host my own instance, even without any communities, it would present content from other instances to me faster and more reliably.
Yes provided federated replication works reliably.
Does an instance do any content caching for other instances?
Yes, federated replication occurs at post/comment/vote time. The on-demand reads for a user-account browsing lemmy occur out of the db for the instance that hosts their account, not the instance that hosts the community.
Are images caches from other instances?
Thumbnails yes, fullsize, no. Fullsize images are the main exception to replication/caching.
Obviously if my instance goes down, there’s no service. Is there some sort of high availability or clustering supported?
This is an advanced topic. Lemmy is multiple processes working in concert, some of them are easy to cluster, others are trickier, others are impossible. Federated replication will handle standard 10m server restarts through retries. If your instance is down for many hours or days, some messages will never get delivered to it and you'll have a gap in your timeline.
A single user instance will be present data that has been replicated to it faster than a big overloaded instance, it's getting less clear that lots of single-user instances are good for the health of the overall network though. If a big instance federates with 1000 other instances, it has to copy every post, comment, and vote 1k times. If each of those copies is serving hundreds or thousands of users... that's a pretty good deal. If each is server 1 user that only reads 10% of the stuff... it looks a lot less efficient. And we're starting to see more common lag and breakage in replication, whether that's v0.18 compatibility issues, or federated replication performance issues I don't know. But federated networks do struggle as the size of the network becomes very large, and this is the biggest the lemmyverse has ever been. Large instances may start to struggle to deliver federated mesages for a while, and more single-user instances would exascerbate that if it's happening.