Advantages
The advantage of Proxy ARP over other networking schemes is simplicity. A network can be extended using this technique without the knowledge of the upstream router.
For example, suppose a host, say A, wants to contact another host B, where B is on a different subnet/broadcast domain than A. For this, host A will send an ARP request with a Destination IP address of B in its ARP packet. The multi-homed router which is connected to both the subnets, responds to host A's request with its MAC address instead of host B's actual MAC address, thus proxying for host B. In the due course of time, when host A sends a packet to the router which is actually destined to host B, the router just forwards the packet to host B. The communication between host A and B is totally unaware of the router proxying for each other.
Read more about this topic: Proxy ARP
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