Fiddler will automatically adopt the system proxy (IE's Tools > Internet Options > Connections > LAN Settings) as its default when it starts up. To change this behavior, or manually specify a different proxy, inside Fiddler choose Tools > Fiddler Options > Gateway.
As you noted, you can manually set an upstream proxy on a single request using the X-OverrideGateway
You only use URLMonInterop.SetProxyInProcess() when you are running a FiddlerCore based application and want to set only that one application containing FiddlerCore
to use the FiddlerCore-based proxy. Stated another way, this API allows a FiddlerCore application to capture traffic from itself without
needing to become the system proxy. That API is limited to controlling traffic from WinINET/URLMon. This is primarily useful if you have an application that hosts one or more of the IE WebBrowser controls within itself.
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