According to the wiktionary, a "proxy" is an agent or substitute authorized to act for another person. You can find many variations on this theme in the wikipedia. If you belong to a club or association that is having a vote on something at a meeting which you are not able to attend, you can give your proxy to a friend or neighbor to vote for you. In the old days of Europe, a monarch could be married to someone by proxy — without the bride being present. In trading card games, a substitute card used can be used when a player does not own the substituted card.
As you would expect, the proxy has found it’s way into the world wide web. A "proxy server" allows a user to make indirect network connections to other network services. For example, if you have a mobile phone — who doesn’t — you can use Opera Mini to surf the web. Top of the line "smart" phones such as the Palm Treo, have a browser included but the vast majority of mobile phones are not robust enough to include a browser. Opera Mini has changed that. It works using a proxy server. Opera mini looks like a browser, works like a browser (and a very good one) but when you make a request for www.whatever.com, Opera mini actually sends that request to a server in Norway and your desired web page appears on your phone.
The ultimate proxy server may be Psiphon (pronounced “SY-fon”) which is going to become available this Friday. Some countries have become very restrictive and implemented censorship to prevent citizens from accessing certain web sites. The wikipedia, for example, provides the scoop on many subjects that these countries would rather their citizens did not know much about. Universal access to blogs is a clear threat in certain countries. The idea with Psiphon is that people in an uncensored country download a program to their PC which becomes a proxy for people in a restricted-access country. A relative in a far away country enters a web site address and the browser takes them to the PC of a relative in the U.S. or elsewhere which in turn retrieves the desired web page and delivers it in the browser of their relative in the censoring country. According to the New York Times story this morning “Web Tool Said to Offer Way Past the Government Censor“, the program’s designers say there is no evidence on the user’s computer of having viewed censored material — after they erase their Internet history after each use, which is easy to do. This is just one more example of how the Internet has provided "power to the people".

• Web Tool Said to Offer Way Past the Government Censor