I unfortunately it has to be connected to the internet, Steam Cache works by acting as a DNS and when you are downloading it sees you are contacting steam, and asking for a package it then checks to see if it has it already. If it has: HIT, you get it locally. If it doesn't: MISS, you get it from the internet. If you are the only one on the network steamcache is not a good solution, only if you have a few Gamers on the network.
Hope that answered you question