What is the Tor Project
Tor creats a private network pathway, the user’s software or client incrementally building a circuit of encrypted connections through relays on the internet.
The circuit is then extended in single hops, hop by hop, each relay-hop along the way only knows which relay gave it data and which relay it is giving data to, (the next hop).
In this way, and using the Onion system, no individual relay-hop will know the complete path that bit-data packet came from.
Tor client negotiates a separate set of encryption keys for each hop along the circuit to ensure that each relay–hop can not trace the connections as they hop through.
The Tor Browser lets you use Onion on Windows, Mac OS X, or Linux without needing to install any software. It can run off a USB flash drive, comes with a pre-configured web browser to protect your anonymity, and is self-contained (portable).
Proxy providers set up a server somewhere on the Internet, this allows you to relay your traffic, a simple and easy way maintain architecture.
Users all enter and leave through the same server, you just have to point your browser at their server.
Simple proxy providers are good if you don’t want protections for your privacy online and you trust the provider.
Simple proxy providers use SSL to secure your connection, this may or may not protect you from eavesdroppers in the local cafe with free wifi and your provider knows who you are and where you are.
Tor passes your traffic through at least 3 different servers before sending it to the destination, there’s a separate layer of encryption for each relay, Tor does not modify, or even know, what you are sending, it merely relays your encrypted traffic through to pop up elsewhere, completely intact.