Does this just store the most frequently used media?
No - it's everything. It's basically a fancy networking controller with 160tb of storage. Here's some more info: This Box Can Hold an Entire Netflix. The current units deployed in Australia are actually smaller and lighter.
It does note that daily Netflix updates can be up to 8tb (albeit in the US and back when the library was more extensive - so I suspect ours would be maybe 2.5tb max) so I'm not sure how QF would handle that on every aircraft. It'd be too much of a hassle to switch racked units in and out every day. Maybe we'll see CAT6 ethernet cables connected at overnight stops? ;-)
Could lead to some interesting announcements : 'Qantas would like to apologise for the short delay. We're currently awaiting the final three episodes of Downton Abbey Season 6 to finish transferring, but after that we'll be on our way.'