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A reverse proxy in Nginx acts as an intermediary between clients and backend servers, forwarding client requests to the appropriate server and returning the response. It enhances security by hiding the details of the origin servers and improves performance through caching and load balancing. Nginx can be configured to handle SSL termination, which offloads encryption and decryption tasks from backend servers. Additionally, it provides features like request routing, rate limiting, and access control to optimize web applications' efficiency and reliability.