|Squirrel Proof Bird Feeder|
The first answers on the internet are mixed. Many web sites say "No," they locate the nuts by smell. It turns out that this is only partially right. A 1991 study published in PDF found evidence that they could locate the nuts they buried.
"Captive squirrels were released alone into an outdoor arena, where they cached l0 hazelnuts each. After a delay of 2, 4, or l2 days, each squirrel was returned to the arena and tested for its ability to retrieve nuts from its own cache sites and from l0 cache sites used by other squirrels. Although each squirrel's own caches were close to the caches of other squirrels, the squirrels retrieved significantly more nuts from their own sites than from sites used by other squirrels after all delays The retrieval accuracy of the squirrels under these conditions indicates that while grey squirrels can locate buried nuts by their odor, they can also remember the individual locations of nuts they have buried."Squirrels use a system of triangulation to remember where they have hidden their food. A study at the University of California Berkeley show that they triangulate the location of hiding places using what we would call "landmarks." While the human brain might be able to remember 4 or 5 triangulations to locate something, the tiny squirrel brain can remember 300 to 400 triangulations to locate the food they have hidden.
Even more amazing is these backyard bandits ability to get to illicit food sources such as bird feeders and vending machines. This 2007 British video is well worth a watch.
More on squirrels but storing strategies is a this link. They handle selected acorns differently, discussed here..