As people are now living longer than in past years, and often times require more long term care, and are more likely at some point to suffer from either cancer, dementia or Alzheimer's, advanced directives have taken on a new urgency for most people. The case of Terri Schiavo in Florida several years ago also underscored the point for many Americans about how they didn't want to die in a similar manner.
A health-care proxy places your decisions about your health care in the hands of a family member or someone you trust. It gives them legal permission, and waives from them legal consequence, to make decisions regarding your treatment and care after you are no longer able to decide such matters for yourself. This would include whether to continue chemo or IV's to a terminal cancer patient, or whether to give a Do Not Resuscitate order, or whether or not to disconnect from life support machines.
A Living Will, on the other hand, means you have made your own decisions about such situations ahead of time, and have legally notarized such decisions in writing so that no one needs to be faced with the burden of making such difficult decisions for you. This is generally more common than power of attorney.
There are two aspects to these instruments. First a Health Care Proxy or Advanced Directive, strictly speaking, is the appontment of a legal representative that has authority to make decisions or enforce decisions for a patient who is unable to do so. A Health Care Proxy can also contain a living will that specifies a patients preferences for care.
Generically, here in Pennsylvania, a living will was the common law directive where a potential patient would set forth his or her wishes for care if incapacitated. A number of years ago the PA legislature passed a statute that superseded the common law living will and codified its intent into a formal health care directive that addressed the living will concerns as well as the appointment of a a legal representative.
Obviously, the advanced directive is more plenary and comprehensive.