What is a Filter Anyway?

Internet filters are also known as content-control software, censorware, or web filtering software.  Web filters determine what content will be available to users on a given machine or network.  One can implement filters by installing software on a personal computer or on server computers that provide Internet access.  Additionally, many Internet Service Providers automatically block questionable content by offering the parental control options.  
1.  API Method uses operating-system programming interface that gathers information about a foreign application such as browsers and chat applications to seize control of a "foreign application" when the information gathered triggers a positive database of banned words.  Parental control using API technology shuts down the "offending application".  Parental control software using API technology is limited to shutting down the offending application; in some cases, a different action like deleting the offending words may be possible depending on how the offending application is programmed. This method has the advantage of using a small list of definitions to conduct filtering; these definitions may be hard-coded or placed in a flat file and loaded into memory at startup.  

2.  Proxy Server Method ensures that a browser will communicate directly with the proxy server and the proxy server will then handle the request and take on the task of finding the web pages and returning them to the browser.  This ensures that the given workstation will always deal only with the proxy server rather than a foreign server, which also has the added advantage of speeding up the connection by catching content locally.  The next widely utilized technology is the proxy server method. An application such as a browser will communicate with the proxy server and the proxy server will then handle the request and fetch the Web page and return it to the browser. This assists with security because the workstation never deals directly with the foreign server but only with the proxy, which can also speed up the connection and alleviate congestion by caching content locally.  In this example the proxy server is an http proxy and receives an http header request for a Web page; the server will parse the host section or the get section of the header and do a search in a database of banned (user-defined) words or banned (user-defined) URLs. If there is a positive match the proxy server never relays the request to the remote server, but instead either returns nothing and leaves the response to the local client application to deal with, or returns an alternative response to the request, such as a custom "denied" page or a redirection header.

Some common ISP providers offer parental controls.  These are Charter Communications, Yahoo!, Earthlink, AOL.  Also, more general software such as Norton Internet Security, Mac OS Xv10.4

and Windows Vista Operating system offer parental control options.

Source: Wikipedia: http://en.wikipedia.org/wiki/Parental_control