A proxy (or more correctly, a proxy server) is a server that acts as an intermediate between your computer and the server on the internet. For more information, check out:
http://www.desy.de/www/proxy/what_is_a_proxy.html
http://www.allsands.com/Science/whatisaproxy_akx_gn.htm
http://www.proxybench.com/proxy/articles/proxyfaq.asp
http://www.nyu.edu/its/faq/connecting/about_proxy.html