Squid is an open source proxy server: http://www.squid-cache.org/. Proxy servers are a convenient point to implement web access control (blocking people from going to certain sites), but that isn't their purpose. A proxy server does offer some security related elements in that users may not be able to reach the web without it, but its main purpose is caching (pages and DNS) for efficiency.
Update March 2011:
That was true in the days of slow internet access, but it is not today. Today, proxy services are often built into firewalls and their main purpose is to block rather than to cache.
Squid still exists, but there are other services that involve no more effort than changing your DNS server: OpenDNS provides the blocking services that often are the only reason that a small business cares about proxying at all.
Reporting what was blocked for whom is often missing from the low end products. A very nice proxy with very strong reporting is built into the Kerio Firewall that I sell (see Kerio Control Policy Based User Access).
See also SQUID Log Analyzer.
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