Caching assemblies at client can dramatically improve performance of a Silverlight application. When Application Library Caching is enabled for a Silverlight application, overall application startup improves as all third party assemblies/ DLLs are already on the client. In this case, these assemblies are packaged outside of the project’s XAP file.
Here is how you can enable Application Library Caching in your Silverlight application-
Solution Explorer --> Right Click on Silverlight Project --> Properties --> Silverlight Tab --> Check "Reduce XAP size by using application library caching"
After Application Library Caching is enabled for a Silverlight project, it creates a seperate ZIP package for all third party assemblies which are not part of the core run time.
Please be aware that you can not use Application Library Caching and Out-Of-Browser support in same Silverlight application.