Caffeine can enhance physical performance by acting as a stimulant that increases alertness and reduces perceived effort during exercise. It can improve endurance by mobilizing fatty acids, allowing athletes to use fat for energy instead of glycogen, thereby prolonging performance. Furthermore, caffeine intake may increase strength output and help with recovery post-exercise. However, individuals vary in their tolerance to caffeine, and excessive intake can lead to side effects such as jitteriness or insomnia. Moderation is key for optimal performance enhancement.