AWS API Gateway service proxies allow you to remove Lambda from the equation when integrating with other AWS services, reducing cold start latency overhead and concurrency limits. This approach can be useful for APIs that need to handle large bursts of traffic or have strict latency requirements. However, it's essential to consider trade-offs, such as cost and limitations on concurrency, before implementing service proxies. The serverless-apigateway-service-proxy plugin provides a straightforward way to create service proxies using the Serverless framework, supporting various AWS services like Kinesis Streams, SQS, SNS, and S3.