The difference here (with a bypass) is the loop is wide open at all times. In the case of a heater it is usually a closed loop, and only open when the heater is on. That's also when its cold out so there is less need for the water to get cooled. Also the heater core acts as a radiator when it is open.
So the water path for the system as a whole is: cool water from the radiator goes to the water pump, through the engine where the water gets hot, out to the radiator again. The heater hose connections are at each end of the engine path: the hot water (after going through the engine) comes out of the head (the barb by the alternator) to the heater core, back to the engine just before the water pump (the barb on the coolant pipe, which is normally the cooled water). When the heater is removed and the bypass loop added, the hot water from the head goes directly back to the water pump inlet (at the pipe). Therefore hot water is recirculated through the engine without going through the radiator first.
That's why Rachael's suggestion of plugging the fittings is better than adding a hose loop. This way no water passes from the hot head back to the water pump.