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.