I realized that these applications are frequently used together. What is the role of each software in the mission of anonymity and privacy on the web?
While I understand Vidalia is a GUI provider, I couldn't figure out why Tor needs Privoxy. Isn't it such a proxy provider by itself?
Privoxy is a proxy server that (pay attention here) uses application-layer filtering. HTTP traffic passed through Privoxy will have certain privacy-oriented rules applied to them. For example, Privoxy will block ads, detect and disable click-tracking scripts, disabling pop-ups, etc.
Polipo, on the other hand, is a caching proxy server which is perfect for slow networks. Tor is such a network. Polipo can enhance the appearance of the network performance by using caching and other trickery.
Privoxy and Polipo are not competitors; they have very different purposes. In fact, you can use them together to get the privacy benefit of Privoxy and some performance enhancement by Polipo. This can be done by chaining the traffic between them.
Privoxy was delivered with Tor to increase the anonymity of its users. While Firefox was able to use a SOCKS proxy, it leaked DNS requests. So any DNS request was not done through Tor, but through the normal IP connection. Firefox together with Privoxy as a HTTP(S) proxy didn't have those leaks. So the Tor developers recommended this combination. The DNS leaks were later fixed and all recent versions of Firefox use SOCKS in a correct privacy-preserving way.
However when you surf the web there are all sorts of attacks on your individual privacy. Privoxy defends against many of them. So it is a good idea to use it.
The Tor project also recommends Polipo and even made it the default browser in some old versions of Tor Browser Bundle. This was mainly because Polipo seemed faster and also had filtering capabilities. But later it switched to Privoxy because of the above mentioned reasons.
tor is a SOCKS proxy, while privoxy and polipo are HTTP proxies. adnan's answers explains the benefits of these proxies.
You could configure Firefox to use tor directly, and with recent versions of Firefox this is secure and private. Older versions had a privacy leak bug, and the original motivation behind the HTTP proxies was to workaround that bug. But you would not get the additional benefits that the HTTP proxies give you.
