Answer from cs61c-an (Ben Weil 16819970) for Question 2
The cache has a limited size and these bits are used in a similar way to the hashcode of a hash table, selecting where in the cache to store the information in that piece of memory.  The higher order bits could be used if for example teh cache could hold 8 values, then the top 4 bits could be used, but this would not be practical because often times these bits are the same for most memory accesses because data tends to be clumped together, meaning they would all have the same higher order bits.