Caravans are not part of your village and are one of the few professions that can never join. A Caravan is usually a small group of people with the trading profession. They enter the settlement with a little wagon of goods. These goods are mostly random, but are more likely to be items that your village cannot make yet. In addition, the caravan are much more likely to bring items that your town has high prices for. Likewise, caravan are less likely to sell items that has a low market price in your town and may even be willing to buy if the price is low enough. Caravan behavior is indicated in the market prices page (which is accessible from one of the buttons on the bottom of the screen). Within the pages of market prices, there is a column with a small caravan image accompanied by a green up arrow, a yellow square, or a red down arrow. The green up arrow means that caravan will buy this product and likely won't be selling it. The yellow square means that caravan are neither likely or unlikely to buy/sell. Lastly, the red down arrow means that the caravan are more likely to sell instead of buy. As mentioned in the Economy Guide, caravan sales will not affect market prices (unlike villager storefront sales).
Caravans will only come to your settlement if a Caravan Marketplace is set up. The Caravan Marketplace only requires 2 structures to trigger the arrival of caravan: the storefront and a caravan storage. Additionally, caravan will stay for several nights in your town, paying money for beds and meals at an inn if available but will not buy beer pints or mead.
Buying From Caravan
Everyone in your village will be free to buy from the caravan. This also includes the ruling family. You can buy from the caravan by opening the warehouse book, selecting the buy tab, and lastly choosing caravan from one of the buttons at the top.