@Moon @matrix Funny coincidence, I ran into this at work again today and learned something new:
Chrome on Windows uses Windows' own proxy client stuff, and the bypass list given in that option is in fact fed to the windows proxy client settings. So it only applies on Windows. Also, it's not for allowing to connect to a proxy running on localhost, it's for allowing to access "localhost" (or 127.0.0.1, etc) THROUGH the proxy.
I learned all of this because apparently in certain releases of Windows 10, this is broken :(