Keyword Proximity refers to the distance between two words or phrases, or how close keywords are to each other within a body of text. The closer the two keywords are to each other, the higher the weight for that phrase. Consider these two examples:
We sell blue widgets at a price you can afford.
All of our affordable widgets come in shades of blue.
The phrase blue widgets has better keyword proximity in the first example than in the second, as the words are closer to each other. If all else were equal, the first example would rank higher than the second.