when you use WSDL.exe to compile a web service the 
following 2 steps are done:
1) A new proxy is generated for your web service 
2) Web service is compiled into .cs file (You can view it 
to check out the client code)

Now you have to compile your cs file into dll file so you 
can make reference to it. THis can be done by running the 
following command in VS prompt:
 csc /t:Library myservice.cs

3) Then .cs file it is converted into .Dll
But if you are using VS Dot Net then these 2 steps are done 
automatically

When you add reference to your web site, a proxy is created