proxies are placeholders, like models that just roughly have the shape the final object should have. they are there to establish the motion and animate the camera in c4D and will be replaced in post with paint-overs.
usually for this sort of animations my characters are 3D and most of the rest is 2D, here and there some 3D proxy elements as a guide to paint over to create those melting effects.
and yes, you could also make those animations with shading, it just means (a lot) more work.
i'm very much looking forward to r20 with fields and volumes at this point for this sort of stuff, since we will be able to do a lot more in this regard with those new tools.