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What is a Proxy?

A proxy or proxy server is basically a server that sits between your computer or local network and a larger network or the Internet itself.

Different Types of Proxies?

Transparent Proxy

A transparent proxy announces to the world that it's a proxy, and passes on your information. It provides no privacy improvements. It can provide a benefit by caching frequently accessed pages; many companies also use this system for filtering purposes.

Anonymous Proxy

An anonymous proxy offers the caching benefits of a transparent proxy, while hiding your IP address (by replacing with either the proxies IP, or a random address. The downside to this approach is that sites that use address detection to establish unique users (online games, voting, some logins) will not be able to distinguish you from others in your domain. Of course, that might be a bonus sometimes.

Elite Proxy / Highly Anonymous Proxy

A highly anonymous (often known as an elite proxy) makes your system look the same as a non-proxied system (with the proxy server's IP address). This provides the best security; however, all the caveats of an anonymous proxy are still present. In addition, an anonymous proxy's existance can be detected, and the server can suggest workarounds, but there's no way to detect an elite proxy. Again, that may be your goal.