In a nutshell, what you're doing with a proxy is
setting up a middle-person between you and the
internet. Using the proxy, your browser hands
off web page requests to the proxy server, which
handles the request and fetches the page for you
from the internet. The web site actually thinks the
request is coming from the proxy server, not
your computer, which is a good way to obscure
your originating IP address.
Additionally, the connection between your
computer and the proxy happens over SSH, an
encrypted protocol. This prevents wifi sniffers at
the coffee shop from seeing what you're doing
online.
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