Basically the situation is if you do no media operations (resize etc) there is no work down on the image, so it points to the image where it sits. However, because you have a space in your folder structure, and because the built-in PHP server is so limited in functionality when it comes to path routing, it doesn't translate this space properly.
I think that if you ran MAMP it would work as-is, but this .cache call will force images to be processed by the image library, and remove the space from your path. However this does cause initial page load (before cache) be slightly slower (after cache its the same), and could cause some very minor degradation in image quality.