The Fiddler documentation includes instructions on how to configure the tool as a reverse proxy (http://www.fiddlertool.com/Fiddler/help/reverseproxy.asp). Option #1 is only useful if you're setting up Fiddler as a local reverse proxy; if you want to use Fiddler from external clients, you need to go for Option #2.
The code snippet to be added to your custom rules file includes two string listerals: "webserver:8888" and "webserver:80". It's in important to note that "webserver" is not a variable name--it must be replaced with the name of your web server (i.e. MyServer, as in http://myserver). The other important thing is to add the code snippet to the OnBeforeRequest function and not the OnBeforeResponse function. You'll also probably want to allow remote clients to connet via Fiddler so make sure the Tools -> Fiddler Options... Allow remote clients to connect options is selected.
You can change the listen port from 8888 via Tools -> Fiddler Options... Listen Port if you want to use a port other than 8888.
If you implement both Option #1 and Option #2 you might end up with problems like an infinite loop.
The change may take a little while to come into effect so meanwhile, try restarting Fiddler, running an iisreset, or rebooting.