A real VPN, or virtual private network, creates a virtual network interface adapter that is a smaller "private" network that runs on top of the internet. The virtual network interface has an IP address, subnet mask, gateway, and DNS settings just like a real network interface. Because a VPN uses a virtual interface and does not inherently change how your device uses DNS or any other network services, it also does not bypass your device's hosts file which is a fundamental part of your device's network stack.
An HTTP(S) proxy has no virtual network interface and no virtual private network. When your browser is configured to use an HTTP(S) proxy, the browser then makes that request to the proxy server instead of actually connecting to the requested Web server directly.
Depending on the type of the proxy, name resolution can be handled differently. There is a difference between a SOCKS4 proxy, which resolves locally, versus a SOCKS5 proxy, which can resolve remotely. A SOCKS proxy and HTTP(S) proxy, while being two different things, both are types of proxies.
The main difference between VPN and proxy is that a VPN works on the network layer 3, while an HTTP(S) proxy works on the application layer 7. DNS itself also works on the application layer, therefore DNS as a protocol, including your hosts file, is not even accessed at all when a proxy is being used that has the ability to forward name resolution to the distant end. Since a VPN works on layer 3, DNS, HTTP(S), POP3, FTP, SSH, and every other application runs over it as usual and your hosts file works as expected. There are several types of proxies, and depending on the layer and specific purpose they were designed for, can come with different methods of performing name resolution.
The Psiphon free VPN that you are using is therefore a SOCKS5 proxy which
resolves remotely without using the hosts file.