Okay, I think that I have finally figured it out....could not sleep last night, and spent some time on pages 19.4 and 19.5 of the faboulous Bentley.
 
If I understand the colling system correctly, when the engine is cool, the hot coolant leaves the head of the motor, goes to the water pump through that little bypass, and back to motor. When the engine is hot, the thermostat opens, and the hot coolant circulates the other way; the hot collant now circulates to the rad, cause the thermostat is now open, and cool colant comes from the rad, and now goes into the head. 
 
Sounds complicated huh, man, but that is the only way I can see it working.
 
Anybody can infirm or confirm?Marie; Proud new owner of a 83 diesel Vanagon with a mystery jetta gas motor Yukon
_________________________________________________________________
News, entertainment and everything you care about at Live.com. Get it now!
http://www.live.com/getstarted.aspx