What problem does this feature solve?

Memory cache in codeGeneration bloats as compiler invokes rebuild.
This could cause a huge memory bloat in big projects:

#8976 (comment)

Would be better to support maxGeneartion related feature to reduce cache that was not be frequently accessed. https://webpack.js.org/configuration/cache/#cachemaxgenerations

What does the proposed API of configuration look like?

Option-wise, it's the same as webpack.