What is the maximum number of connections squid can support at a time? There are 5000 users in a campus so how many squid proxy systems will I need?
It depends on the nature of the connections, the speed of the networks between the proxy and server / proxy and client. Knowing that there are 5000 users doesn't give a lot of information about the number of concurrent connections. But presumably these people are able to access the internet currently - so why not measure the what they are doing now?
Certainly for this volume it would be reasonable to provide more than one proxy in terms of reliability, and since licensing costs should not be an issue, then I'd recommend using more low-spec machines over fewer high-spec ones. I suspect that 2-3 very low end boxes (Athlon X2, 2-4Gb memory) but with extra HD capacity (say 2x500Gb disks as a mirrored array) would suffice. They'd also benefit from having a faster interconnect independent of the internet and intranet connections - so at least 3 NICs. Once you've worked out how to the load balancing, adding more nodes (if you need them) is trivial.
You'd have to test it to know for sure; depends on how heavy the traffic is. You might very well run into limitations on the switch or network card before Squid dies off.
How much memory do you have? Drive subsystem? Are you planning on using it just as a proxy for monitoring, or actual proxying of data so you're hitting the disk subsystem with a lot of traffic (and what are you doing to keep from disk I/O being a bottleneck?) And your CPU, what are you using?
Are you able to ramp up the connection, say by switching dorm by dorm to the proxy system, so you can see if you're going to overwhelm it? Or do you already have a system in place to set up a farm and use something in the front end to load balance a farm of proxies?