The Ag.AzureDevelopmentStorageProxy is a proxy application that enables a Silverlight client to access the Azure Development storage.
The proxy does two things. First of all, it fixes the issue with Silverlight not being able to find a client access policy when working with the Development Storage. When working with the real cloud, uploading a clientaccesspolicy.xml to the $root container will solve that. But for the Development Storage service, the root folder is at http://127.0.0.1:10000/devstoreaccount1/. So Silverlight will not be able to find one.
Secondly, it reroutes incoming requests to the Development Storage. The only thing needed is to get the Silverlight client to request the blob using a different port than the standard one. The proxy will then reroute the call to the correct port, as well as add the "/devstoreaccount1/" path fragment to the request. So if you need to access http://127.0.0.1:10000/devstoraccount1/myblobcontainer/myblob, you make the call to http://127.0.0.1:11000/myblocontainer/myblob. This Uri resembles the "real" Uri better than the dev storage one and is easy to switch to when working in debug mode.
If you wish to test it, there is a Silverlight client project in the solution that offers this ability. All you need to do before you run it, is to create a container called "mycontainer" and set access to public. And then upload a text file to that container and name it "myblob".