client machine links a port to an external host:port
e.g.

forward tcp:80 123.55.66.47:8080

System works:
client accepts port 80 -> establishes connection to proxy server on port 1081
client sends it's desired IP and port to proxy server, including it's username and password

Server connects to desired ip and port, and passes the data back to client, wich ends up at port 80 again.

 (SSH forwarding basically on windows)