A proxy is a middle step between your computer and the internet at large.
Quite a few ISP's run a transparent proxy on port 80, so they can build a cache. Next time someone else on the ISP needs that page, it can be retreived from cache, making it much faster.
The context you're talking though, using a proxy to mask your IP address, I don't think that should be open to discussion here.
The potential for abuse far outweighs the benefits of knowledge.