This may or may not make things clearer. This is a diagram about how a vpn would would for a business. It's pretty much the same idea however. In this diagram, the business has it's servers set up behind the firewall. This way, unauthorized people would meet up with the firewall and be unable to access the private information contained in the servers. However, with the proper authentication, this firewall can be tunnelled. The computer with the green lines here has had it's information coded, packaged, and opened on the other side of the firewall (inside the businesses servers)
This works to our advantage here in China. The Great Firewall is keeping us in, not out. By coding, packaging, and tunneling our information, the Great Firewall is unable to detect it. When it is received by the servers of the VPN company you choose, it is then sent off to the destination you originally intended it for. It's kind of like taking a detour. It's from this process that you lose the Chinese IP address and change your IP address to the one of the server you're signed in to. It sounds complicated and slow, but it's actually quite quick, and for most VPN services, it takes only a few seconds to sign into their servers and then you don't even have to think about it. You most likely won't notice a difference in your internet connection speed.
Proxies DON"T WORK ANYMORE. It's because of the extra layers of coding that happens before your data is sent to the VPN server that VPN are superior to proxies. This is also the reason that most of China is unable to connect to PPTP and L2TP VPN protocols. SSL/OpenVPN is the most secure, and most recommended VPN. Now there are some areas of China that can connect to PPTP and L2TP (necessary for iPhone users). Be sure to check if upgrades are possible, just in case you get a PPTP or L2TP and later realize that it's blocked in your area of China.
Check out my choices for the Top 5 VPNs in China