How to set up caching and compression correctly in Joomla

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I'm developing Joomla websites and I've just been running some page speed tests at http://tools.pingdom.com/. It gives me a zero score for browser caching. I have caching already enabled in Joomla global configuration. Is there something else I should be doing for caching to work properly?

I also have GZIP enabled through Joomla global config, but the tool says I need to Specify a Vary: Accept-Encoding header so my resource compression score is pretty low too. Is this something else that I should be doing, or should the server be doing this?

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If you want to enable browser caching you have to enable cache plugin.

Page Caching

Configuration: Built-in Plugin (Extensions -> Plugin Manager -> System - Cache)
Caches: each whole page of your site
Based on: URL
More info:
    Optional browser caching: Also caches on your visitors' browser/computer
    Only caches pages for guest visitors (not for logged in visitors)

You will have improvement in the site speed but it is not recommended for sites that content updates often or e-commerce projects.

You could also check joomla extensions directory for a 3rd party cache solution.

Hope this helps