Definition
SOCKS5 is the fifth and current version of the SOCKS proxy protocol, defined in RFC 1928. Unlike HTTP proxies, which understand HTTP and rewrite headers, SOCKS proxies are protocol-agnostic — they forward arbitrary TCP traffic (and, with the SOCKS5 UDP extension, UDP) without inspecting it. Authentication options include none, username/password, and GSSAPI.
SOCKS5 and VPNs
Some VPN providers offer SOCKS5 access as an alternative or supplement to their VPN protocols. The key difference is that SOCKS5 is application-layer: only configured applications use it, while a VPN tunnel handles everything system-wide. SOCKS5 also typically does not encrypt traffic on its own — encryption depends on the application protocol (HTTPS will still encrypt; plain HTTP will still leak). For BitTorrent in particular, SOCKS5 is a popular lighter-weight alternative because it avoids the latency overhead of a full VPN tunnel while still hiding the user's IP from peers.
Trade-Offs
Use SOCKS5 when you want to proxy specific applications without affecting others, or when running a full VPN client is impractical. Use a full VPN when you want comprehensive coverage and proper encryption. SOCKS5 can be combined with TLS at the application layer (HTTPS, secure email) for a similar privacy result for those specific applications, but does nothing for unencrypted protocols.