His bid might have been $1000 higher than yours; eBay's proxy bidding system only increases it by the minimum amount necessary to beat the next-highest bidder. $1 in this case.
Took me a few auctions to catch on to that too. For example, if the current bid is $25 and you put your max at $50, eBay will bid $26 for you. If another bidder comes along and bids $40 as their max, eBay will automatically bid $41 for you and tell that other person they were outbid.
The best way to win an auction is figure out the max you are willing to pay for something, and then enter that amount in the last minute. Hopefully, nobody will have outbid you AND it won't require your max for you to win it.