The ETag feature is supposed to help caching. That's why it was implemented. It's a unique ID associated with a particular version of a page, the browser sends a code saying "Send me X if the current version isn't $ETag, a copy of which I already have", and the server responds either to say the browser has an up-to-date version or sends the updated version.
Why not use timestamps or something like that, I pretend you ask? Well, because that's a less reliable method, as we've learned over many decades of trying to get that to work. Plus, I hate to mention it, but you can probably profile a user based upon a collection of timestamps if you try...
The network traffic saved is that saved by not sending new copies of every single image and static HTML page every time the user navigates around a website and sees common content. With today's image-heavy web design, I'd estimate it's at least 100k (this /comments.pl I'm-using-to-write-a-reply-to-you Slashdot page alone has over 200k of images, yet is only 11k of HTML), and up to a megabyte, per page, probably constituting more than 90% per click, averaged over pages you've been to, pages you haven't but that are part of a website you've already navigated some of, and pages on websites you've navigating for the first time.
So yeah, it's quite a substantial amount of bandwidth being saved.