Bypass shocks provide externally adjustable damping.
Bypass tubes are welded to the outside of the shock body that allow the shock fluid to flow around the piston. Each tube has a bypass valve that controls how much fluid can pass. When the valve is opened up, it allows fluid to pass easily (soft). When the valve is closed down, less fluid is able to pass (firm).
They are position sensitive, which means they are able to individually control the amount of damping in several stages as the piston cycles up and down.
The bypass valves allow you to achieve non-linear damping curves which means you can have the shock soft at ride height for a smooth ride and progressively firmer as the shock compresses for the bigger bumps.
Bypass shocks are necessary if you are subjecting your vehicle to high speeds over rough terrain