I'm a tcsh man, not bash, but a quick look at the bash manpages suggests aliases are the correct term in this case. I would use an alias for a single command, functions appear to deal with multiple commands or more complex logic.
These should do the trick (untested):
alias proxy-on='gconftool -s /system/proxy/mode -t string manual'
alias proxy-off='gconftool -s /system/proxy/mode -t string none'
A 'script'* would have to spawn a new shell to process the command, rather inefficient.
*I can't quite bring myself to call a one liner a script!