What this setting PROXY_LOCATION is about?

I'm trying to use PiHole through docker behind NGINX proxy but it has been extremely weird.

I'm trying to solve this problem described here:

And as it's not working, I'm currently looking for bugs. One thing that I can't understand yet is what PROXY_LOCATION setting is for? In the example below, indicates to point this property to pihole container hostname, pihole is not a proxy, so what is the reason for that?