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I believe a proxy means you have a special set-up where another computer is the one making real connections to the internet and firefox just relays info back and forth between you and the proxy. You'd probably know if you had a proxy system set up, so just choose direct connection.
Ah... alright... It was set to a proxy server on my parents' comp (which is using the wireless internet from my router), but that server wasn't working, so I set it to just auto-detect a proxy server, which worked.
After reading this thread, though, I tried setting it to direct connection and that worked, too...
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After reading this thread, though, I tried setting it to direct connection and that worked, too...