The proxy server is no new idea, having been around for years providing networks the ability to split a single point of entry to the internet amongst all the client computers connected to the LAN. The need for this exists for a few different reasons. Firstly, each connection to the internet requires a unique IP address. It just is not practical to assign an IP address to each and every individual computer that will be accessing the web. Sure, each computer does hold its own unique IP, but it is never visible to the outside world and would not be functional even if it were. These are known as private IP addresses and they can be of any class network as your administrator desires because they are only allowed to route across your network and do not have any real world validity. All contact outside is shunted through the proxy server, which acts on their behalf.
The second reason is, that typically there is only one pipe that up links any network to the web. An ideally cost effective way to divide that connection is to put a proxy server between the connection and the client computers. They make their requests to the proxy server, and it then forwards those queries outside the network and to the actual target web sites. The proxy server handles all the traffic and passes it out accordingly to the client computer making the requests. As a side benefit to the shared connection, network requests are never made allowing direct contact of your client PCs to web sites. This obviously yields excellent protection for those machines from outside invasion, preventing most forms of attack from exploiting the end user machine. The proxy server can also allow filtration of viruses and other unwanted content from your network, making the proxy server a low cost way to protect your data and systems.