A 304 Not Modified HTTP Header tells your visitors that nothing has changed since their last visit. This is important as without this header visitors may be downloading your webpages from scratch each time, slowing down their experience and your site.
Generally if you do not pass 304 Not Modified HTTP Header through your HTTP header, crawlers will fetch your whole website and then compare the content of your site with the already indexed content to check whether anything new has been updated on your website or not. But this process consumes a lot of your server resource and bandwidth.
You can know more about it here.
Before reading any further
Before reading any further it is important to understand this plugin uses output buffering, in fact the Etag sent by this plugin is a hash of the sites buffered content. If your site uses server side caching this plugin may break the caching functionality. Therefore I suggest that you please make sure you have studied the FAQ, before installation and activation.