There are several purposes for the bypass hose. #1 It allows for coolant circulation when the thermostat is closed, to maintain even coolant temperature throughout the engine. #2 It decreases drag on the water pump when the engine the thermostat is closed. This is probably why newer engines, after about '71 use a larger bypass hose. #3 It helps purge air after the cooling system is refilled. #4 It allows circulation of coolant thru the heater core when the thermostat is closed, on a cold morning when you need the defroster to work ASAP.
Those are all the things I have been told over the years,just wanted to see if someone had a differant view.Dodge is the only one that has it. I run a proper thermostat and a restictor in the bypass hose.This lets less water bypass the rad.The first year that I built my 88 I used the 2.2 rad with two small fans.Had to remove the fan to get the 95 5.2 in .I could run it on one fan when it was 85 outside.Stuck in traffic I had to kick in the second fan.
The big three all used bypass hoses on there earliar engines, but later with emission requirements things changed.
Many newer engines use a thermostat that blocks off the "bypass" flow so that when the therostat is open all of coolant circulates thru the radiator, and heater core if it's on. By doing this the cooling system is more efficient and a smaller radiator can by used.