Caro/a have the exact meaning of "Dear" and can be used in the same situations. Generally you find them at the beginning of an intimate "old style" letter/e-mail (Dear Name, ...) or when someone is talking about something he/she cares about as in: "Capisci, mio caro, che non potevo fare altrimenti" "You understand, my dear, that I couldn't act differently" It is generally an adjective but it can also be used as a noun implying "people/relatives", for instance when you say "I miei cari" means "the loved ones" and usually refers to your family. Lastly, it can also mean "expensive" (referring to money, in this case). "Non posso permettermi un iPhone, è troppo caro" "I can't afford an iPhone, it's too expensive".