Yes, files are cached on clients where PeerNest is ON.
The behavior of the cache may be tuned through specific client settings that determine the maximum size of the cache, the minimum amount of disk space that must always be left free, and how long files should remain in the cache before being removed or becoming eligible for replacement (replacement driven by the maximum cache size setting). Details may be found at https://www.ibm.com/support/knowledgecenter/SSQL82_9.5.0/com.ibm.bigfix.doc/Platform/Config/r_client_set.html#r_client_set__peer
Furthermore, there is the possibility of defining passive PeerNest clients by setting _BESClient_PeerNest_IsPassive = 1. Such clients will only be able to download files from other peers, but won’t share files with other peers, and so they won’t need to keep any cached files.