Originally Posted by MikeRP
Hey Larry thanks also, I got there by process of elimination. One thing it that I wasn’t patient enough, this water heater takes longer to heat the water than my old Sunseeker.
Actually seems like a nice system.
Mike, the trick here is that the handle of each valve reveals what it does. The red (hot) one is simpler. Think of the handle as corresponding to a gate inside the pipe. If the handle is in line with the pipe, water can flow. If the handle is pointing across the pipe, water is blocked. So in the position in your photo, water can flow out of the heater, through the red pipe.
The blue valve is a little more complicated. It can steer the water coming in the bottom in either of two directions. With the handle in the pictured position, water flows in the bottom and out the top, through the crossover, blocking the connection into the bottom of the water heater, thereby bypassing the water heater.
If you move the blue valve to the other position, water flows in the bottom, is directed into the water heater, and the bypass link is blocked.
Now you know the secret.
By the way, great photos. So many times you have to stare and guess to understand what's been posted, but yours were excellent.