Cavity varnish is applied beneath amalgam restorations primarily because it improves the marginal seal between the tooth structure and the restorative material. This seal is crucial to minimizing the passage of fluids and bacteria into the cavity, which can lead to secondary caries. The varnish acts as a thin protective layer, sealing dentinal tubules and reducing microleakage at the interface. While it does not bond chemically to enamel or act as a significant thermal insulator, its main clinical benefit is enhancing the seal to extend the longevity and success of the restoration.

Reference: Sturdevant's Art and Science of Operative Dentistry, 7th Edition.