Varnish is a state-of-the-art, high-performance HTTP accelerator. Varnish is targeted primarily at the FreeBSD 6 and Linux 2.6 platforms, and will take full advantage of the virtual memory system and advanced I/O features offered by these operating systems.
Varnish was written from the ground up to be a high performance caching reverse proxy. Squid is a forward proxy that can be configured as a reverse proxy. Besides - Squid is rather old and designed like computer programs where supposed to be designed in 1980.
Varnish is reported to be 10x-20x faster than Squid on the same hardware.