Proxies are used so that the "hacker" can remain anonymous. Once a user connects to a proxy, the source traffic all appears to be coming from the proxy servers IP address, therefor it becomes more difficult to trace back the originating IP.

The one thing that many people forget about proxies is that you are not completely anonymous because you are still making a connection from your box to the proxy server, therefore all someone would need to track you down is the proxy log files.