Virtual Private Network (VPN) and proxies are data encapsulation software that does IP encapsulation in either Layer 2 or Layer 3 or maybe even both. VPNs and proxies are often used for bypassing firewall restrictions, anonymity, access Intranets of certain organisations and visiting websites that are blocked by your ISP.
So how do they work? After the packet data from Layer 3 is ready to be sent, the packet will be encapsulated with the VPN’s IP address before proceeding to Layer 2. This will hide your computer’s real IP address but if you’re using a proxy, there might be headers (X-Forwarded-For) which are sent to reveal your IP address. This is done for some public proxies to prevent abuse from users. If the data exchange link between the VPN/proxy and computer is encrypted, Firewalls will not be able to look through the data to detect and block certain content. This is especially useful if you’re using China’s networks which are filtered and blocked by the Great Firewall of China (Golden Shield Project) or if you’re within a school or campus network. Proxies are also mostly limited for web browsing usage due to limited support from program developers. For example, most games with multiplayer cannot be run through a proxy.
There are many opensource VPN projects such as SoftEther, OpenVPN, Tinc, StrongSwan and many more while proxy software include but are not limited to ShadowSocks and Glype. These software requires a server and needs to be setup and configured by a person with some knowledge in networking. However, there are many free open proxies which do not require any setup. One of the most famous free and open proxy would be Tor and another one would be I2P.
In conclusion, VPN and proxy services are very useful and helpful tools that enables people from China to reach out to the world behind the Great Firewall of China. However, it is also a very destructive tool if abused by evil people with evil intentions.