A proxy server is a computer on your LAN that connects to the Internet without compromising the security of your internal network. If your organization uses a proxy server to connect to the Internet, ArcCatalog automatically picks up the proxy server information from the Windows Internet settings to connect to GIS Servers on the Internet. All GIS Servers including ArcGIS, ArcIMS, and WMS servers will utilize the proxy server.
Typically, the proxy server settings are specified under Windows Control Panel’s Internet Options dialog. If your proxy server is authenticated, you can specify the username and password in ArcCatalog.