Does MySQL 5.0 have a Query Cache? Does it work on Server, Instance or Database?

Yes. The Query Cache was introduced in MySQL 4.0, and operates on the server level. It caches complete result sets, matched with the original query string. If an exactly identical query is made (which often happens, particularly in web applications), no parsing or execution is necessary, the result is sent directly from the cache. Various tuning options are available. See http://dev.mysql.com/doc/mysql/en/query-cache.html