Drupal - How Do I improve the performance of my Drupal7 Site?

These are notes from my experiences and might vary from what others experience. I predominantly use LAMP stack and have considered the same in my suggestions.

Thumb rules for caching that I generally follow.

1. Process Once Use Multiple Times.
2. Live with stale data when possible
3. Clear Caches infrequently and keep it very specific.
4. When possible do the changes at the lowest level in the stack. LAMP - DCCc : Linux, Apache, Mysql, PHP, Drupal Core, Contrib and custom module.

Improve Performance of a Drupal Site (In the increasing order of complexity)

5. Keep the core updated, contrib module and themes updated. Yes it matters.

6. Install APC on your server. (Moved to top based on suggestion from Letharion)

7. Page Caching : admin/config/development/performance Difference between Minimum cache lifetime and Expiration of cached pages

8. Block Caching https://drupal.org/project/blockcache_alter Caching options for all the blocks.
9. Aggregate javascript and css files - Front End Improvements https://www.drupal.org/project/advagg
10. Disable Unnecessary modules. Every module adds to the amount of code that needs to be available for a page load. And it also increases the number of lookups. Wherver possible use a generic module in place of multiple module that does specific functionalities.
11. Cache Views content - Content aware caching for Views https://www.drupal.org/project/views_content_cache
12. Disable DB logging - Use https://drupal.org/project/syslog_ng
13. Reduce 404 Errors - http://www.brokenlinkcheck.com/
14. Fast 404 Responses - https://drupal.org/project/fast_404 - Try handling at server level.
15. Client Side Validations - https://www.drupal.org/project/clientside_validation
16. Compress Image - https://www.drupal.org/project/imageapi_optimize
17. Lazy Loading of Images - Don’t load unnecessary images - https://www.drupal.org/project/lazyloader

18. Use Sprite Sheets - https://www.drupal.org/project/spritesheets

19. Set Minimum Cache Life Time Value to a higher number and use cache clearing modules to clear the caches for specific pages - Whenever I edit/update a node all the page caches for anonymous user are lost

20. Use Devel Module to watch queries.
21. Rewrite Views Queries / avoid Views if its a overkill.
22. XHProf - https://www.drupal.org/project/XHProf
23. FPM, HHVM.
24. DB Profiling and Tuning - https://www.drupal.org/project/dbtuner
25. Use Boost, don't Bootstrap DB if not required. https://drupal.org/project/boost For most of the small to medium sites Boost is good enough and you may not need Reverse Proxies or so.
26. Use CDNs - https://www.drupal.org/project/cdn Its easy to set up.
27. If your cache tables are huge use Memcached - If you can install memcached and set up RAM for it, it is not as complex as it sounds.
28. Etags - Configure Etags properly. https://developer.yahoo.com/blogs/ydnfiveblog/high-performance-sites-rule-13-configure-etags-7211.html
29. Use Reverse Proxy Server - Varnish(at-least for assets). Helps a lot if most of your users are anonymous.
30. Compressed transfer - Enable gzip compression
31. Keep Alive - Use Persistent Connections where possible.
32. Progressive JPEGS -
33. CACHING IN CODE - Eaton’s blog is awesome. http://www.lullabot.com/blog/article/beginners-guide-caching-data-drupal-7
34. Implement Cache Warming - https://www.drupal.org/project/cache_warmer - Cache Warm the pages before the end user hits them.
35. Master Slave DB Config - https://www.drupal.org/project/autoslave makes it easier for you to set up one.
36. Database Clusters - https://stackoverflow.com/questions/1163216/database-cluster-and-load-balancing
37. Load Balancers -http://en.wikipedia.org/wiki/Load_balancing_(computing)
38. Use heuristic Cache Warming - https://www.drupal.org/project/cache_graceful
39. Authenticated User Caching - https://www.drupal.org/project/authcache

The database layer is important. I cover some parts of it and the basics in this presentation http://goo.gl/30yi39

As a companion to Gokul's answer here's the way I would think about what you want to cache in Drupal (not ordered by complexity):

Caching means speeding up repeated activities.

The big repeat actions involved in a Drupal website are:

• Calling a webpage
• Running PHP code to build a webpage
• PHP calling items from the database

Caching an entire webpage

The biggest caching gains are to be had from finding a way to cache an entire webpage without ever running the PHP code or calling the database.

You can do this with Varnish or Boost. When a user calls a page they return a copy of the page without ever doing a calculation.

However this won't work if parts of the page have to be different (i.e. users login and their name appears at the top).

In order to get that to work you need to look into Authcache.

PHP Caching

You can cache PHP with APC, or if you have version 5.5 or greater then a different cache is built in.

This is done server side and means chunks of your PHP code will be remembered. You're caching PHP for Drupal but you're not technically interacting with Drupal.

Database Caching

Calls to grab information from the database are expensive.

The commonest database caching mechanism is memcache.

This caches database objects in RAM, so instead of making a call to a database object on the harddrive, you just pull it from the RAM which is a lot faster.