ProGuard is integrated into the Android build system, so you do not have to invoke it manually. ProGuard runs only when you build your application in release mode, so you do not have to deal with obfuscated code when you build your application in debug mode. Having ProGuard run is completely optional, but highly recommended.
When you build your application in release mode, either by running ant release or by using the Export Wizard in Eclipse, the build system automatically checks to see if the proguard.config property is set. If it is, ProGuard automatically processes the application's bytecode before packaging everything into an .apk file. Building in debug mode does not invoke ProGuard, because it makes debugging more cumbersome.
http://developer.android.com/tools/help/proguard.html.
The above quote is from the documentation. Is your application in release mode?
http://developer.android.com/tools/publishing/app-signing.html#releasemode
Edit:
What is obfuscation?
By default, compiled bytecode still contains a lot of debugging information: source file names, line numbers, field names, method names, argument names, variable names, etc. This information makes it straightforward to decompile the bytecode and reverse-engineer entire programs. Sometimes, this is not desirable. Obfuscators such as ProGuard can remove the debugging information and replace all names by meaningless character sequences, making it much harder to reverse-engineer the code. It further compacts the code as a bonus. The program remains functionally equivalent, except for the class names, method names, and line numbers given in exception stack traces.