When Windows Internet Properties -> Connections -> LAN Settings -> Automatic Configuration is set to \"Automatically detect settings\" how does Windows actually determine/di
It's a network broadcast, usually using DHCP.
That there wikipedia page should tell you all you need to know.
This info about WPAD (Web Proxy Auto Discovery) seems to describe the process in detail, though I have confirmed that what Tomalak says is also actually occurring.
The IE configuration described enables a WPAD implementation. Here's the Microsoft explanation of the entire mechanism (probably too much detail for a single post).
Its DHCP ;)
In modern systems it is DHCP who does this all.
•Go to Tools > Options > General > Connection Settings > •Set to “Manual Proxy Configuration”
Its simple: Browsers (Firefox works the same) query GET http://wpad/wpad.dat
.
If a web server named wpad is resolveable, it should serve wpad.dat, a script file analog to netscape PAC files. MIME type must also be "application/x-ns-proxy-autoconfig".