To configure the router to transparently redirect all connections coming from ether1 interface to port 80 to the web proxy listening on port 8080, then add the following destination NAT rule:

My question is this: What does ether1 interface represent? WAN or LAN?

My WAN is ether1.

My question is this: What does ether1 interface represent? WAN or LAN?

It all depend on you. Which cable did you plug into ether1, WAN or LAN? What IP address did you configure on ether1, WAN or LAN?

For your convenience, you can change the name of the interface from ether1 to either WAN or LAN depending what you have configured the interface to be.