Kube-proxy can run on each and every node and can do simple TCP/UDP packet forwarding across backend network service. 

So basically, it is a network proxy that reflects the services as configured in Kubernetes API on each node. 

So, the Docker-linkable compatible environment variables provide the cluster IPs and ports which are opened by proxy.

https://kubernetes.io/docs/concepts/overview/components/#:~:text=kube%2Dproxy%20is%20a%20network,or%20outside%20of%20your%20cluster.