Okay this is a pretty technical post, but it does have an important enterprise implications. The proxy file (convention is to use proxy.pac) is a javascript file that defines how web browsers can automatically choose the appropriate proxy server for fetching a given URL. This is very useful to use in a company where you might have different proxy servers in different geographies and you want the person's web browser to automatically use the right proxy server. The file can also do things like turn off the use of a proxy server if it isn't in the currently used network. This is very useful for laptop users who might use their laptops on a home network at the end of the day. So in summary a proxy.pac file stops you from having to reconfigure proxy settings for your browser every time you change networks.
http://nscsysop.hypermart.net/proxypac.html - good examples on how to write complex proxies
http://en.wikipedia.org/wiki/Proxy_auto-config - Wikipedia Resource
http://wiki.garylaw.net/doku.php?id=technical:automatic_proxy_configuration – Lots of details and resources here