It is using a router to answer ARP requests. This will be done when the originating host believes that a destination is local, when in fact is lies beyond router.

Proxy ARP (Address Resolution Protocol) is a technique by which a device on a given network answers the ARP queries for a network address that is not on that network. The ARP Proxy is aware of the location of the traffic's destination, and offers its own MAC address in reply, effectively saying, "send it to me, and I'll get it to where it needs to go." Serving as an ARP Proxy for another host effectively directs LAN traffic to the Proxy. The "captured" traffic is then typically routed by the Proxy to the intended destination via another interface

The main advantage of proxy ARP is that it can be added to a single router on a network and does not disturb the routing tables of the other routers on the network.