Now, I'm not 100% correct, but I think I am really close...

i run my LAN through my own proxy server set up on an old machine i had lying around.
i do the proxy test, it specifies my modem's IP address but says i do not have a proxy. a smartwhois reaps CenturyTel address, phone, etc. which is my ISP. rather, it gives me the IP of my modem, not the proxy box or any other computer on the LAN.
Because you have your own proxy on your lan, everyone uses one ip address. It is similar to NAT except for there is no cache/firewall.

If you were to use someone elses proxy, you would then take over their ip address. It will make your request look like it is coming from somewhere else. Like spoofing...

would that mean that anyone on the inside of my proxy is safer since it couldnt give me my IP address?
or does it mean that since the proxy is not between the site and my modem, it wouldnt identify it?
either way, i guess im just clarifying that the home proxy provides some annonymity, but a call to centurytel would reveal who has this IP?
If you use a proxy in your home, it will still show your ip address, but not which machine on your network. It is still traced back to you(isp assigned ip), but not to which machine(you assigned ip).

One main advantage of a proxy is that, instead of having all of your macines open to the internet, you would only have one machine. That machine serves as the proxy/firewall.

All of your other machines will go through the proxy/firewall. The proxy/firewall would relay the traffic based on a set of defined rules but the proxy can also monitor web traffic and urls. It can cache common pages so the load is faster for the rest of the machines on the network.

Wait... I found a perfect deffinition of it.. explains much better than I.
proxy server

A good example of a public proxy would be anonymizer

Attached is a quick network diagram I modified to show where a proxy is located on the a sample network.