The caution refers to the famous phrase "You do not have to say anything but it may harm your defence if you do not mention when questioned, something that you later rely on in Court. Anything you do say may be given in evidence"
It's a way of making the evidence admissible in a Court of Law. Basically he does not have to answer any questions put to him by the police. If he does answer them, they are recorded as evidence and if he were to say something different later in court then that would be detrimental to his defence. Additionally if he chooses to say nothing now but later in court tries to give an explanation, inferences could be made (e.g. that the account has been subsequently made up)