You got it. A Bypass Valve is installed onto the pipe which runs between the turbo and the intake manifold. It is a simple open/closed-type valve which sits closed in its resting state. When your foot comes off the gas pedal, as in shifting or decelerating, the throttle plate closes partly or completely. This causes the pressure in the intake manifold to drop. A small tube connects the Bypass Valve to the intake manifold (spliced into the boost gauge sensor line). The drop in manifold pressure sets off a spring-loaded mechanism to open the valve. When the valve opens it gives an audible sound as the turbo "charge" is vented out to the atmosphere. As the pressure equilibrates the valve is shut completely again.
Without the bypass valve installed, each time you shift, the throttle plate closes and the compressed air slams into it and backs up. Having nowhere else to go, the pressure wave recoils back through the intake. This sends a pressure spike back through the turbo's turbine, stalling it and creating undue wear and tear on the turbo bearings! This can be heard as a stuttering sound each time you shift. This sound is your boost pressure stalling your turbo and coming back out the air filter and duct pipe!
In general a valve installed with its exhaust to the atmosphere is referred to as a "Blow off Valve", while one whose exhaust is directed back into the intake stream is properly called a "Bypass Valve."
__________________ Craig Janas
1990 7-UP convertible
Incon twin turbo | 
what is a bypass valve 
