What is the use of proxy ARP?

When routers receive ARP requests from one network for hosts on the network, they will respond with a ARP reply packet with their MAC address. For example, let us say host A is in one network, host B is in another network and router C connects these two networks. When host A sends an ARP request to resolve the IP address of host B, the router C receives this packet. The router C sends an ARP reply with its MAC address. So host A will send all the packets destined for host B to the router C. Router C will then forward those packets to host B. Proxy ARP is also used if a host in a network is not able to understand subnet addressing. For example, if host A and host B are actually in two different subnets, but host A cannot understand subnet addressing. So host A assumes that host B is present in the same network. In this case a router, host C, can use proxy ARP to route packets between host A and host B.