its just a filter element placed higher up on the intake arm
Air likes to travel in the easiest way. If the filter behind the bumper gets submerged in water the other filter will begin taking air in instead. This also means that water will not be sucked up.
Think of a vacuum hose that has a large hole in it. The tip will still suck air in, but large things (puddles of water in this case) will be much more difficult to get through. Also, the overall suction power is lessened. That also means that the cold air intake you have will generate less power w/ the bypass than it did before w/o it and just the 1 filter at the end.
More than likely you will have to cut the piping to install the bypass (its a mid-pipe filter)
like that (the grey thing is the bypass "valve"...its just a filter w/ 2 holes in it)