Yes you have to be in close proximety you cant if you walk past a person smoking but if your in the car with someone yes. It depends how close ypu are
In the iPhone the proximity sensor turns the screen off when you make a call and put the phone to your ear. Apple claims this saves some battery life but who knows..I imagine most phones use the sensor the same way.........
The water pump is located in close proximety of the timing belt. In fact the timing belt also drives the water pump. This is why, when you get your timing belt done, they usually suggest a new water pump as well. May save a lot of labour charges later.