What is the difference between a proxy and a VPN?
A proxy intercepts traffic for a specific application; a VPN captures traffic from the whole device and encrypts it. The practical difference is scope and encryption, and confusing the two leads people to assume protection they do not have.
A proxy sits between one application and the internet. Your browser is configured to send requests to it, and it fetches on your behalf. The destination sees the proxy's address rather than yours.
What it does not do: it does not usually encrypt anything beyond what the application already encrypts; it applies only to applications configured to use it, so everything else on your device goes direct; and a plain HTTP proxy can read and modify unencrypted traffic passing through it.
A VPN creates an encrypted tunnel at the operating system level. All traffic from the device is wrapped and sent to the VPN server, which decrypts it and forwards it on. Your internet provider sees only an encrypted connection to the VPN.
What the two share: both change the apparent origin of your traffic, which is why both are used for geographic restrictions, and both mean you are trusting the operator with whatever they can see.
The trust point is the one that matters. A VPN does not make you anonymous; it moves your traffic's visibility from your internet provider to the VPN operator. A free VPN is a business, and the product is frequently the traffic — several have been found logging, injecting advertising or selling bandwidth.
Where each is appropriate:
A proxy — routing one application, corporate content filtering, caching, and scraping or testing from different regions.
A VPN — connecting securely to a workplace network, which is its original purpose; protecting all traffic on an untrusted network; and hiding browsing from your internet provider.
Neither protects against: the website identifying you through login, cookies or fingerprinting; malware; phishing; or a compromised device. A VPN changes who can see your traffic, not what you do with it.