How isolated could it really be as a docker container vs a separate machine or proxmox?
You can get much better isolation with separate machines but that gets very expensive very fast.
It's not that it provides complete isolation - but it provides enough isolation very cheaply. You still compete with other applications for compute resources but you run in your own little filesystem jail and can run that janky python version that your application needs and not worry about breaking yum. Or you can bundle that old out-of-support version of libaio that your application requires. All of your dependencies are bundled with your application so you don't affect the rest of the system.
And since containers are standardized it allows you to move between physical computers without any modification or server setup other than installing docker or podman. You can run on Amazon Linux, RedHat, Ubuntu, etc. If it can run containers it can run your application. Containers can also be multi-platform so you can run on both ARM64 and AMD64 seamlessly.
And given that isolation you can run on a kubernetes cluster, or Amazon ECS with FARGATE instances, etc.
But that starts to get very enterprisey. For the home-gamer there is still a ton of benefit to just having file-system isolation and an easy way to run an application regardless of the local system version and installed packages. It's a bit of an "experience" thing to truly appreciate it I suppose. Like I said - if you've tried running a lot of services on a system in the past without containers it gets kinda complicated rather fast. Especially if they all need databases (with containers you can spin up one db for each application easily).