Nice patch, I really like it when such a boolean "pass-me-around-everywhere" parameter can be removed. I've added some comments, and added @Sergey Sharybin (sergey) as reviewer as he's the module owner.

source/blender/sequencer/intern/image_cache.c
851–861	This entire block can be a separate function that determines the correct flags. That way it's clearly marked as its own little block of functionality, gets a clear name and explicit input/output, and you can then declare `const int flag = whateverthefunctionisnamed()` to indicate that after the flag value has been determined, it won't be modified. The code itself will also be easier to understand, as you can replace some assignment to the mutable variable `flag` with a `return` statement to indicate that that's the final value.
855	Bits should not be set to zero by subtracting, but with a bitwise-AND operator. Use `flag &= ~(SEQ_CACHE_STORE_FINAL_OUT);` or something along those lines.
856	These comments don't make much sense. What I read is: "this flag is invalid, but enable it anyway in some situations". This is not acceptable.
1142	`timeline_frame` and `type` can be declared `const`
1157	`timeline_frame` and `type` can be declared `const`

This revision now requires changes to proceed.Jan 11 2021, 11:57 AM

Address inlines

Harbormaster completed remote builds in B12095: Diff 32607.Jan 11 2021, 1:43 PM

Richard Antalik (ISS) added inline comments.Jan 11 2021, 1:44 PM

source/blender/sequencer/intern/image_cache.c
856	This code is from initial commit, and it is actually nonsensical. `SEQ_CACHE_STORE_FINAL_OUT` can not be even set for `seq->cache_flag` so I have removed `flag -= key->seq->cache_flag & SEQ_CACHE_STORE_FINAL_OUT;` completely. Otherwise that would belong to versioning code. I am not sure why I have used substraction there. Quite possibly a mistake.

Code-wise it looks good. How do I test?

Apply clang-format

Harbormaster completed remote builds in B12114: Diff 32631.Jan 11 2021, 5:50 PM

In D9955#251425, @Sybren A. Stüvel (sybren) wrote:

Code-wise it looks good. How do I test?

The bool was used to prevent endless loop since seq_cache_get would call seq_cache_put with bool to skip disk cache, because otherwise it would call seq_cache_get to check disk cache to prevent reinserting image that would call seq_cache_put again and so on.

So if sequencer doesn't freeze, that means this works.

Here is setup for usual test case and few methods how to check if things are working as they should:

Setup:
Enable disk cache, chose directory, load some slow-to play video in sequencer, save test file file.
You can see cache status visually when you turn on developer extras, and enable in sequencer timeline View > Show Cache > all options.
Under sequencer timeline, in Playback popover menu set Sync to Play Every Frame to make sure playhead doesn't jump around randomly.

Test without any tools or possibility to change code:
With test file play footage for few frames, make sure file caches by visual indication, playback should be slow.
Press Ctrl+R to wipe RAM cache
Rewind playhead to start
Play again, playback should be much faster due to having footage cached on disk.

You can also inspect disk cache folder to see if files are created if something goes wrong.
Refer to format for more info:

/* <cache type>-<resolution X>x<resolution Y>-<rendersize>%(<view_id>)-<frame no>.dcf */
#define DCACHE_FNAME_FORMAT "%d-%dx%d-%d%%(%d)-%d.dcf"

Though there are things that I may need to clarify, for example you may wonder, why the red line (raw images) is not there on replay - This is because if final image is found, there is no need to read any more images
To test raw images you can invalidate "final" images by changing property of strip, for example transform it a bit., change opacity or move on timeline.
And it seems that drawing of raw cache level is a bit broken, I need to look into it why.

Test with debug prints:

diff --git a/source/blender/sequencer/intern/image_cache.c b/source/blender/sequencer/intern/image_cache.c
index f6795b15f7c..e7f747f3128 100644
--- a/source/blender/sequencer/intern/image_cache.c
+++ b/source/blender/sequencer/intern/image_cache.c
@@ -1365,9 +1365,12 @@ struct ImBuf *seq_cache_get(const SeqRenderData *context,
     BLI_mutex_unlock(&cache->disk_cache->read_write_mutex);

     if (ibuf == NULL) {
+      printf("image not found in disk cache\n");
       return NULL;
     }

+    printf("frame from disk cache read successfully\n");
+
     /* Store read image in RAM. Only recycle item for final type. */
     if (key.type != SEQ_CACHE_STORE_FINAL_OUT || seq_cache_recycle_item(scene)) {
       SeqCacheKey *new_key = seq_cache_allocate_key(cache, context, seq, timeline_frame, type);

I should have probably added more info there such as what type is being read vs what is requested, but key for cache items is relatively big - there is lot of data so it depends what you are looking for exactly

If none of above would provide meaningful insight, I would step in debugger and look at variables to see what's going on.