When the engine is cool the thermostat is closed. This allows coolant to circulate through the engine by way of a bypass canal located directly below the thermostat.
As the engine warms up, the thermostat begins to open allowing coolant to pass through to the radiator. At the same time a lower poppet or bypass valve moves down to block bypass canal.
When the thermostat is fully open the bypass is fully blocked circulating all coolant through the radiator.