Drupal Caching on High Traffic Site

I run a high traffic site, hundreds of nodes, typically several hundred visitors are on at any given time.

My problem is with drupal cache. I can't remember where, but I remember reading that Drupal cache is completely cleared everytime any node is added/edited..etc

This is exactly when my site will hang up. During peak hours, if one of our writers contributes a node, our server will overload and crash.

What are my options? I've heard about file based cache, will this help me enough to fix the problem.

Also, why does drupal cache work in that way. I can understand taht one node being added can affect a lot of things, but why clear the entire cache all at once? Why update entire cache once a day (set time to some off hour with low traffic, and then only update homepage + node, not all the hundreds that exist.)

Thanks for any information,

Tom-E