The "SYSTEM" return type should work similarly to the system proxy mode in the Chrome API, which takes the proxy configuration from the operating system. For more information, see the proxy API design document: https://docs.google.com/document/d/1W45o5X2bFRPrTaQDFp9IzTJ8njCVfEgyENS7i2owaUI/edit?usp=sharing
How is this fixed/resolved? Is it already supported by the implementation in bug #1295807?
This bug isn't fixed/resolved, it just depends on bug 1295807 which was recently fixed/resolved. Bug 1295807 sets up the infrastructure for these bugs to be worked on, and the next stage in the development is to land these bugs. The main tracking bug for the Proxy API is bug 1283639.