The proxy design pattern provides a surrogate or placeholder for another object to control access to it. It works by adding an extra layer of indirection between clients and the real subject. This allows the proxy to perform additional tasks like lazy initialization, access control, caching and logging before forwarding the request to the real subject. There are different types of proxies like remote, virtual and protection proxies. The proxy pattern implementation in C# creates a proxy class that implements the same interface as the real subject and holds a reference to an instance of the real subject. The proxy forwards requests to the real subject while also performing other operations like access control.