Proxy workflows are usually explained as a way of handling big files. The real constraint is decoding cost, and understanding that distinction determines when proxies help and when they do not.
Recording and editing want opposite things
Camera codecs are designed to fit high quality into limited storage, which they achieve by describing most frames as differences from other frames rather than storing each one completely.
That structure is efficient to write and expensive to read. Displaying an arbitrary frame requires reconstructing several preceding frames first, which is work the processor must repeat continuously during playback.
Editing demands exactly the behaviour the codec is worst at, namely jumping to arbitrary points and scrubbing backwards, so an efficiently recorded file becomes a difficult file to work with.
A proxy trades quality for cheap decoding
A proxy is a second copy encoded so that each frame stands alone, usually at reduced resolution. Reading any single frame requires no reconstruction of its neighbours.
The file is often larger on disk than the original despite looking worse, which surprises people who assume proxies exist to save space. They exist to save processor time.
Because the cost has moved from playback to storage, a proxy workflow generally requires more free capacity, not less, and that is the trade being made deliberately.
The link back to the original matters
Editing software keeps a relationship between each proxy and its source, so every cut made against the low-quality copy is recorded as a timecode reference rather than as picture.
Switching back to the originals before export means the finished piece is rendered from full-quality footage, and nothing about the proxy stage reaches the output.
This is why proxies can be deleted after a project is finished, and why a project reopened later can simply regenerate them from the untouched camera files.
Where proxies do not help
Effects, grading and stabilisation are computed rather than decoded, so they remain slow regardless of which copy is on the timeline and often behave differently against reduced resolution.
Fine judgements about focus, noise and grade cannot be made on a proxy at all, which means certain decisions must be deferred until the full-quality footage is back in place.
Generating them costs time once
Creating proxies is a lengthy pass over the entire shoot, which is why it is usually started immediately after ingest and left to run while other preparation happens.
Cameras that record a small file alongside the main one remove that step entirely, and on long shoots that saving is often larger than any gain during the edit itself.