D282 Cooling System Questions

I'm finally getting back to hooking up the cab heater on my 656. I was trying to figure out the best places to plumb the heater core into but am a bit confused by the bypass hose in the above photo. I thought the bypass was to allow circulation through the block & head while the thermostat was closed. It appears to me that this hose connects from the waterpump to the radiator side of the thermostat rather than the head side. So how the heck does that work? it appears factory. Doesnt the water come from the pump through the block into the head and only through the thermostat when it opens?
There is an additional plug in the waterpump hidden right behind that bypass hose. I figured that might be a good spot to return the cab heater to. Theres no outlet on the head side of the thermostat so I guess I will have to remove one of the plugs in the side of the head for the hot supply.

My other question is on the other side of the engine. There is what I assume to be an engine oil cooler below the oil filter. it has two hoses into it. One connected to the lower radiator hose, the other back up to yet another port in the water pump. I assume the water flows from the lower radiator hose through some kind of heat exchanger and returns to the water pump. Is that correct?

On one of my engines their is a plug on top of the head about center.Other wise right side on the head their are large like threaded plugs try to use one of those with reducers to 1/2"" hose then dump back to lower side of block.

The hose coming from the water pump is the pressure
hose. Run that hose to your cab heater, and the
heater outlet to the oil cooler.

hook your heater core parallel to the oil cooler connections , then in summer turn off supply to heater core only so you get maximum flow for best cooling of engine oil

Before I hook up the cab heater anywhere I would first like to understand how this system functions. If the little bypass hose is pressure rather than suction, wouldn’t it be circulating water through just the radiator and not the engine?

There are 4 ports on the waterpump. The large lower radiator hose, which I assume, is a suction line flowing toward the pump. I also assumed the 3 small ports were all suction. One from the oil cooler, one is the bypass hose pictured and the third is plugged right behind the bypass hose. I then assumed the pump pushed all this water into the block where it’s mounted and up through the head to the thermostat and upper radiator hose. That’s how I thought cooling systems functioned.

Apparently I’m mistaken so can someone explain what is really happening? I’m baffled now.