proxy_arp (and proxy_ndp for ipv6) can be turned on on a few
interfaces (at least 2).
This is mainly useful for creating pseudo-bridges between a real
interface and a virtual network such as VPN or a virtual machine for
interfaces that don't support real bridging (most wlan interfaces).
As ARP proxying acts slightly above the link-layer, below-ip traffic
isn't bridged, so things like DHCP won't work. The advantage above
using NAT lies in the fact that no IP addresses are shared, so all
hosts are reachable/routeable.