Meaning of Cache 404 (not found) pages
Cache 404 (not found) pages is one of the options provided in W3 Total Cache caching plugin for WordPress.A gentle warning message also assists the option saying that this will result in status code of 200 (OK) instead of 404 not found.
Status code 200 is return if a page is found.So if you are caching pages not found on your website (i.e. 404 pages) then you are returning 200 return code.Search engine spiders will think that the not found page exists on your website.They will then index that not found page.
Find if you are caching 404 pages
W3 Total Cache is one particular example where I saw this option.You can investigate your cache plugin and see if something similar exist there.
If above mentioned way is not preferable to you then there is alternate method.You can sign into your Google webmaster account and navigate to HTML Improvements section.Check if there is any entry as Page Not Found or Not Found (or title of your 404 page) under Duplicate title tag section (you can check by clicking on duplicate title tag).
As title of all your 404 pages is same Duplicate title tag issue arises.
Cache 404 (not found) pages issues
After discovering whether you are caching 404 pages or not you must consider ways it can hurt your search engine optimization.The Duplicate title tag is one search engine optimization issue you must consider.Along with it these pages may get reported under Short Meta description section of webmaster tools.
The non existent URL sending 200 return code will get included in search engine index and will be treated as part of your website.This is not going to do anything good for your SEO.
Cache 404 (not found) pages solution
You should disable caching of your 404 pages.Along with it decreasing page size of 404 pages will help you decrease bandwidth consumption and server load.Reducing size of 404 page is also recommended in Bing 404 guidelines.You can also use third part applications like Swifttype.I will talk in detail about Swifttype in next post of mine.
404 page guidelines
Bing and Google both have come up with 404 page guidelines.You can read the Bing 404 guidelines (I am referring to Bing 404 pages guidelines because I found that one more detailed and also mentions the issue described above).
I was not paying any attention towards my website 404 pages but having discovered above issue and in course of finding the solution I realized that these pages are as important as any other page on my website.So start analyzing your website as well and see if you have similar issue.
Do not forget to spread the article and help fellow webmasters/website owners.