“In computer networks, a proxy server is a server that acts as an intermediary for requests from clients seeking resources from other servers” Wikipedia link. In other words machine XYZ that is located within your network, instead of connecting directly to the internet to request a web page it will go through the proxy server. With a more advanced setup you can control access to SSH , FTP and so on. This adds a layer of security because you can control what type of requests your users are allowed to use and you can also impose rules as to what your users can do with already allowed requests. In addition you can create a cache of web pages that will reside in your proxy server. This reduces the overhead on the network because the contents of web pages do not have to fetched from the Internet each time your users request it.