A reverse proxy is like a virtual HTTP server that forwards all requests to a given web server.
The reverse proxy feature of Charles is useful if you have an application that cannot be easily configured to use a proxy server, and you want to view its HTTP traffic. Simply point the application to a given port on the machine running Charles and Charles will proxy the connection to a specified server.
For example, you could set up a reverse proxy in Charles so that the port 81 on your machine forwards traffic to http://www.xk72.com/. Then if you point your web browser at http://localhost:81/ you will in fact be viewing http://www.xk72.com/.
You may configure multiple reverse proxies, but each reverse proxy must operate on a unique port and can only proxy to one web server.
All of the recording and throttling features of Charles apply to reverse proxies as well.
See http://www.sans.org/reading_room/whitepapers/webservers/302.php for a much more complete explanation.