This is not just a simple proxy though; for the most part Proxies require secure connections (HTTPS) and Iran has blocked the SSL and TLS protocols which means that not HTTPS, TLS or SSH connections are possible through their firewall.
To get around this TOR is working on a way of hiding encrypted traffic. With their new project they are going to be able to mask SSL and TLS traffic as any number of other protocols by using a proxy network that is capable of translating the masked protocol.  This is not just encapsulating something inside another protocol though; the new technology should even pass DPI (deep packet Inspection) attempts made.  

The TOR project admits that this new software (called obfsproxy) is not ready and can only make SSL and TLS look like SOCKS. The down side of this is that SOCKS is the protocol that is used for 99% of all Proxy traffic and can be easily blocked. Once the software is completed you should be able to emulate almost any type of traffic you want including standard HTTP traffic.

As for other attempts at blocking traffic such as IP and DNS blocking TOR can by-pass these by routing traffic through bridge servers and finding a country or area where the IP or DNS entry is not blocked. This will put a nice monkey wrench in acts like SOPA, ACTA, PIPA and TPP as it will make getting rid of websites almost impossible. It will also make finding internet users that are getting around the laws almost impossible to find.
Again as more and more governments and corporations push to block information and content on the Internet the more the community will gather and get around these laws and blocks. Right now the speed on the TOR network is not that great, but as more and more people run repeaters from their own systems this will also fade.

If you are interested you can help test out the new obsfproxy and also read about how it works. TOR warns that this is not for the non-technically inclined though.

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