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I'm of the understanding that they act as a middleman between your computer and the web pages you visit, but what exactly do they do?
Are they completely masking your IP address?
When you send messages through however many routers are the proxies modifying the packet information so that the private info isn't traced back to you?
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They can't mask your IP entirely. You used it to connect to them so they know it. Therefore it's not truely hidden and in use from your PC to the ISP to that proxy.
supposedly you request a page and they then access it and feed it back to you. You can see how this can also be the ultimate "middle man attack" if using the wrong or dishonest proxy. You can check the Tor proxy network if you want privacy from everyone but NSA.
If you want almost total anonymity, you can use a quickly disposable or easily hidden cheap USB wifi (since they have trackable MAC address on them), boot from a "read only" LIVE DVD disc with some Linux distro on it, save data to a USB flashdrive on a TrueCrypt encrypted volume in an unusual file system like RieserFS. You cruise to McDonald's or any place you can detect an open access available. Interstate exits are great places to find some of those. You don't check anything previously related to you, like webmail account, or any site you usually sign into, so no identity revealed.
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