The paleolithic diet, or caveman diet, is based on a skewed understanding of evolutionary history, but it is an effective short-term diet because low-carb diets in general are effective short-term diets.
The paleo diet is based on the myth that we evolved to eat as hunter-gatherers. Discover magazine has an article dispelling that myth in their April, 2013 issue. It may be available online. You can search for "Why the Caveman Diet is a Myth" to find it. As I write this page, I am unable to find a link to the Discover article, but that may be because it just came out in this month's issue.
Basically, the point of the article is that the diet is based on assumptions and wishful thinking about the evolutionary past of humans.
The paleolithic (or caveman) diet is based on the idea that we should eat only what does not need to be cooked. It does not forbid cooking, but it does forbid eating what can't be eaten without cooking, limiting us to meat and vegetables, almost no grains.
As it turns out, humans have been cooking and grinding grains for at least 30,000 years, and probably much longer, so the advice is not based on any real evolutionary past.
I will add that for a few years I read both books by Daniel Quinn and a lot of the internet discussion that his books prompted. Daniel Quinn is the author of Ishmael and other books promoting a return to a "tribal" lifestyle. There are some excellent points in his books, which I very much enjoyed, but his description of tribal lifestyles are only so accurate.
I dispute his claims on the basis of more unbiased reports by missionaries that I've read or met who have worked among primitive tribes, especially Steve Saint, author of The End of the Spear. Steve Saint actually lived among the Waodani, a primitive Ecuadorian tribe that killed his father and four other missionaries in 1956.
As an example, Quinn and his followers regularly describe parents in primitive tribes as so loving that their babies feet never touch the ground for the first six months of life. The behavior they describe is correct, but the reason they give is incorrect. It is loving to prevent your baby from being eaten by insects, and that is the real reason that a jungle baby's feet never touch the ground for the first six months of life. Putting a baby down on a dirt jungle floor is a good way to kill the baby, whether because of giant jungle ants, a poison centipede, or who knows what else.
The most important point made in the Discover article is this one:
"It is difficult to comment on 'the best diet' for modern humans because there have been and are so many different yet successful diets in our species."
That quote came from Katherine Milton, an anthropologist at U.C. Berkeley. The article adds:
The notion that humans got to a point in evolutionary history where their bodies were "in sync" with the environment, and that at some time after that point ... we went astray from those roots reflects a misunderstanding of evolution.
Contrary to what we are told by advocates of the paleolithic diet and paleolithic lifestyles, ten thousand years—the amount of time mankind has been known to be farming as a primary lifestyle—is plenty of time to evolve to accomodate a grain diet. Dietary change, just like a change of habitat, is a driving force for periods of rapid evolutionary change. If you cannot handle a certain diet, but it is the primary diet of your society, you and those like you are going to be very prone to a short life, and your society will evolve away from people like you.
Note: For an interesting counter to the Discover article, see "Did Cavemen Eat Bread?."
But here is a very balanced discussion of the caveman diet myth from a supporter of the paleo diet.
Low-carb diets in general work quite well for the short term. I already have a page on low-carb diets, and you can read about their benefits and drawbacks there.
Low-carb diets are great for short-term weight loss (6 months to a year). Adherents to such a diet usually can't keep up the diet for longer than one year, and they gain their weight back.
Low-carb diets also tend to be low in essential nutrients: vitamins, minerals, and especially fiber. The paleolithic diet improves on low-carb diets in the sense that it allows and even promotes the eating of fruits and vegetables. This will not give you grain fiber, but it will give you a good dose of vitamins, minerals, and fruit fiber.
In the end, you can get by an a paleolithic diet if you had whole grains, which will give you heart-healthy and colon-cancer-preventing grain fiber. But then it wouldn't be a paleolithic diet, would it?
If you are past aiming for rapid weight loss, I recommend the AARP's "New American Diet" as encompassing all the dietary advice given on Over-40-Fitness-Tips.com.