Proxy Server

A proxy server, also known as a "proxy" or "application level gateway", is a computer that sits between a client and a server to intercept requests. There are several uses of a proxy server, but the most common is to speed network traffic by caching pages or files that are requested often. By doing so, the proxy server can deliver the request quickly, only polling the server when required. In this way, a proxy server not only speeds up network traffic, but also relieves server load. Major Internet hubs and Internet Service Providers (ISPs) employ dozens of proxy servers.

With proxy server an enterprise can ensure security, administrative control, and caching service.

A proxy server is associated with or part of a gateway server that separates the enterprise network from the outside network and a firewall server that protects the enterprise network from outside intrusion.

Some proxy servers are a group of applications or servers that block common Internet services. For example, an HTTP proxy intercepts web access, and an SMTP proxy intercepts email.

Note: Do not confuse a proxy server with a NAT (Network Address Translation) device. A proxy server connects to, responds to, and receives traffic from the Internet, acting on behalf of the client computer, while a NAT device transparently changes the origination address of traffic coming through it before passing it to the Internet.

For those who understand the OSI (Open System Interconnection) model of networking, the technical difference between a proxy and a NAT is that the proxy server works on the transport layer (layer 4) or higher of the OSI model, whereas a NAT works on the network layer (layer 3).

References:
http://www.wisegeek.com/what-is-a-proxy-server.htm
http://whatis.techtarget.com/definition/0,,sid9_gci212840,00.html
http://kb.iu.edu/data/ahoo.html