In Sid Meyer's Civilization series, the caravan is a non-military unit that cities can produce. This unit moves like any other unit, but instead of being a weapon of some sort, it carries trade goods. When a caravan reaches a city, whether it be one of another civilization or one of your own, it generates an immediate bonus of cash and knowledge, as well as giving a regular bonus of trade to the city it originates in every turn.

The importance of caravans in Civ may not be immediatly apparent, but it can be quite important as the game progresses. As I learned to play Civ, when I finally figured out exactly what caravans did is when I started to be able to win regularly on King level.

The caravan gives a bonus in trade arrows to the city it started from and the city it goes to every turn. This bonus is based on a algorithm with many factors, such as city size, the number of trade arrows that the city already has, and how far away the cities are from each other. Early on in the game, when the cities are small and have unsophisticated governments, this bonus can be very small, sometimes nothing at all. However, as the cities develop, this bonus gets larger, and when cities with these bonuses start trading amongst themselves, the bonus grows almost exponentially, as cities feed off each others wealth.

Trade routes help generate luxury, tax and knowledge, which can also be done by building city improvements. However, city improvements take money to maintain. Trade routes don't. Therefore, trade routes are kind of like a free boost to the growth of your cities.

Later on, under democracy and republic, the existence of trade routes can be one of the major factors in keeping your cities out of disorder and instead celebrating We Love the President Day. In fact, even with a high luxury rate, trade routes are often the only way to keep them happy.

So in Civ, if you want to pull ahead, build caravans, and establish good trade routes.