here's my understanding of it based on the demo i saw at a show.
the valve has plastic flaps covered by a sponge(filter). now, when the filter gets wet or is under water, the pressure of the intake will be less inside the tube so the flaps open up to let air in from the engine bay. if the filter is not wet, the flaps will remain closed. these flaps will basically keep the water from goin up the pipe and into u'r engine.
now from experience, you would need to be completely under water for about 30 seconds for the water to make it's way up to the throttle body. for the first 3 monthi had my CAI, i did not have a bypass valve. i know i ran over a few big puddles which is why i got the valve. when i took apart the piping, the pipes were clean with no signs of water even trying to get up to the throttlebody.
so in my opinion, it's good to have but not really necessary if you don't plan on staying under water for a long time.
-j