The nscd daemon is a caching daemon in Sun Solaris. It provides caching services for hosts,passwd,group,ipnodes databases using various nameservice lookups like hosts file, DNS, NIS,NIS+ and more. Each cache has a separate time-to-live for its data and modifying the local database like /etc/hosts invalidates that cache within ten seconds. nscd doesn’t cache /etc/shadow (contains encrypted passwords for /etc/passwd) file simple for security reasons as anyone would understand.
As nscd daemon provides caching service, it is necessary when you run a name service like DNS, NIS or NIS+ in your network. The configuration of nscd daemon can customised using the /etc/nscd.conf file and it is important more from a security point of view where you can control what is and how is cached on your solaris server.