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What is proxy server exactly. What its purpose ?

A: 

there are two types of firewall: packet filters and proxies.

A proxy can have many purposes. Essentially it's a gateway that can restrict and/or log network accesses.

Maybe you're the admin of a network and you want to monitor the web traffic being accessed by company employees.

In that case you might have your client computers configured such that their web browsers / other apps are configured to access the internet through the proxy.

The proxy can then log what is being accessed - and by whom.

Proxies like squid specialise in caching frequently accessed network resources, in order to reduce bandwidth consumption.

There are many other uses, these are just a few. Hope this helps!

freefallr