You claim to have a background in networking but do not understand these simple concepts?
1) Depending on your T&C with you ISP, you are most likely just paying for a "pipe" to the public internet, restricted to a set maximum speed limit or data volume limit without a guaranteed level of service.
2) See below explaining proxy
3) Your ISP likely doesn't have "servers" on the internet, but routers and switches connecting to a bigger upstream pipe. All of your data will always go through them as there is no other physical or logical path for the data to take.
4) You can't, without physical control of the devices there is no way of knowing. Although if your proxy service supports a VPN connection, the data will likely be encrypted so that even if it is spied on it would be useless to the person looking at it.
In this case, proxy service essentially submits all requests to/from the internet on your behalf and it to the far end it appears to be talking to your proxy service and not you directly, the physical and logical connections of your ISP are still used.
Normal interaction with Google.com, simplified for example:
Your web browser -> ISP network -> Internet Cloud -> Google
(path back is just reversed)
But when a proxy service is in use, it looks more like two separate transations like this (again, simplified):
1) Your web browser -> ISP network -> Internet Cloud -> Proxy server (STOP)
2) Proxy Server initiates new request -> Internet Cloud -> Google
(path back is reversed in two distinct steps as well)
The proxy server becomes your agent... Imagine you wanted to buy something at the store, you have two choices to buy the product, you can either buy the product yourself or send Proxy to do it for you. If you buy it yourself, the store knows some information about you such as what you look like and maybe how often you come into the store. But if you have Proxy go buy it for you, the store doesn't know you or anything about you, just that Proxy comes in buys a product, and probably a bunch of other products too. Make sense?
All of the above is talking about a "web proxy", but some proxy services use a VPN to connect to their proxy server, this is kind of the same thing, but still different. In this case all of your data (not just web traffic) is sent over an encrypted tunnel to your proxy service before going out to the internet, the information still flows through your ISP's network but it is an encrypted tunnel of data.