What is a Proxy Server?
A proxy server is a computer that offers a computer network service to allow clients to make indirect network connections to other network services. A client connects to the proxy server, then requests a connection, file, or other resource available on a different server. The proxy provides the resource either by connecting to the specified server or by serving it from a cache. In some cases, the proxy may alter the client's request or the server's response for various purposes.

Web proxies
A common proxy application is a caching Web proxy. This provides a nearby cache of Web pages and files available on remote Web servers, allowing local network clients to access them more quickly or reliably.
When it receives a request for a Web resource (specified by a URL), a caching proxy looks for the resulting URL in its local cache. If found, it returns the document immediately. Otherwise it fetches it from the remote server, returns it to the requester and saves a copy in the cache. The cache usually uses an expiry algorithm to remove documents from the cache, according to their age, size, and access history. Two simple cache algorithms are Least Recently Used (LRU) and Least Frequently Used (LFU). LRU removes the least-recently used documents, and LFU removes the least-frequently used documents.

Web proxies can also filter the content of Web pages served. Some censorware applications — which attempt to block offensive Web content — are implemented as Web proxies. Other web proxies reformat web pages for a specific purpose or audience; for example, Skweezer reformats web pages for cell phones and PDAs. Network operators can also deploy proxies to intercept computer viruses and other hostile content served from remote Web pages.

A special case of web proxies are "CGI proxies." These are web sites which allow a user to access a site through them. They generally use PHP or CGI to implement the proxying functionality. CGI proxies are frequently used to gain access to web sites blocked by corporate or school proxies. Since they also hide the user's own IP address from the web sites they access through the proxy, they are sometimes also used to gain a degree of anonymity.

You may see references to four different types of proxy servers:

Transparent Proxy - This type of proxy server identifies itself as a proxy server and also makes the original IP address available through the http headers. These are generally used for their ability to cache websites and do not effectively provide any anonymity to those who use them. However, the use of a transparent proxy will get you around simple IP bans. They are transparent in the terms that your IP address is exposed, not transparent in the terms that you do not know that you are using it (your system is not specifically configured to use it.)

Anonymous Proxy - This type of proxy server identifies itself as a proxy server, but does not make the original IP address available. This type of proxy server is detectable, but provides reasonable anonymity for most users.

Distorting Proxy - This type of proxy server identifies itself as a proxy server, but make an incorrect original IP address available through the http headers.

High Anonymity Proxy - This type of proxy server does not identify itself as a proxy server and does not make available the original IP address.