Once you have installed the application from the Market or by downloading the APK no further steps are needed, the app works automatically.
Every time you receive or place a call the Proximity Sensor app starts automatically, when the light sensor reads no light (ie against your ear) the screen will be locked:

When the light sensor registers light again it unlocks the screen, returning you to whatever you where doing before! The app automatically exits when you end the call.
If the screen does not unlock it is because the ambient light is not sufficient to activate the sensor, this is because the hardware is not very sensitive. To unlock manually press the back key, this also disables the app for the current call.
Settings:
To enable/disable the app launch it from the application menu as you would a normal app. Then simply check the box to enable, and clear the check box to disable.
Other settings are changed by pressing the menu button and selecting settings. These allow you to toggle whether the application is automatically disabled when bluetooth or speakerphone are activated.
You can set the threshold at which the application locks the screen automatically by going menu->config or manually through the settings menu
If you want to test the app press the button labeled test. This returns you to the home screen, where the app will lock and unlock the screen as if you where in a call. Note: this works even if you have the check box cleared.

WARNING: When you finish with the test mode, make sure you cover the sensor to lock the screen then press the back key to exit. Forgetting to do so will affect your battery!
I hope you enjoy using the Proximity Sensor, any feature requests/bugs or general comments please email me using the contact section of this website.