The first thing that one should know before setting up the proxy server is that "what type of connection is being used to access the internet". It can be a dial up connection where the modem is connected to the COM ports, or a cable internet where there is an NIC connected to the internet via a Cable Modem or a DSL router etc.
Once that is established then you should be aware of the hardware requirements.
First we will need a "Network Interface Card" for each computer that we plan to connect to the network.
Then we will need an additional NIC (not in case of Dial-up Internet), which will be in the computer which will be connected to the internet directly.
Now it is time to setup up the network
Note :- The Information provided hereon is for people using cable internet.
The first step will be to install the NIC's in each of the computers. Here to make sure you get full use of the card you have purchased, make sure you specify the correct drivers & install it correctly without errors.
Now it is time to set up the internet connection sharing
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Now connect all the other computers to the Same HUB or Switch.
Now in the computer that is directly connected to the internet (hereon referred to as comp1), run the network setup wizard in windows-xp (for manual instructions in other versions of windows click here).
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If you also plan to have sharing of files between computers you must install the "File & Printer Sharing Service" on each of the computers.
Then Finally restart each of computers once again to implement the changes & make sure the connections are attached firmly.
That will set up your "Home Or Small Office Network" & you will be able to browse the net & share resources effectively on all your computers.