Proxyarp should be used with PPP users when the IP address of the PPP user is in the same network that the Digi device is in. For example:

1) Digi IP, 192.168.1.5 Mask: 255.255.255.0
PPP User IP: 192.168.1.10 
Proxyarp should be used.

2) Digi IP, 192.168.1.5 Mask: 255.255.255.0
PPP User alternate IP: 10.10.5.100 
Proxyarp should not be used and netrouting should be set to both.