There are purposes for credentials other than a proxy, but for our purposes you are just going to enter an AD username and password. Just to be even more clear, this is an AD/Windows user. Not a sql server login.
In Object Explorer: ServerName -> Security -> Right click on Credentials and select New Credential -> Fill in the Name, Identity and Password fields.
Kenneth’s getting fancy with animated GIFs, and gives us a good walkthrough of this aspect of SQL Agent security.