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It means that you bypass the coolant line which flows water through the throttle body... which heats it up causing the air to become less dense (less HP).
TB Bypass = Throttle Body Bypass. Potentially hot antifreeze + water is routed through the throttle body to prevent freezing in cold weather. This also can heat up the air being sucked into the intake. The TB Bypass does as it's name implies. Thus, cooler air is pulled into the intake and we all know that cooler air makes more horsepower.
The reason that TBs are heated is that whenever air passes through a venturi (TB) it heats and then cools as it passes through the restriction. Under the right relative humidity and air temp, the moisture in the air can condense on metal parts like the butterflys and shaft, forming frost or ice. Aircraft engines (recip) have carb heat controls to prevent this icing. Fatal at altitude hehe.
Here in New England, we sometimes encounter these conditions in the Fall, Spring, and Winter. For those of us that keep our cars off the road during our 9 months of winter, this is not usually a problem.
On a TB bypassed car, the intake plenum will run cool enough to keep your hand on it while the engine is running. A non-bypassed TB car will have a plenum temperature near the coolant temp. Just how much less dense the intake air is due to TB bypassing is probably not accurately measureable. Many people do this mod since it is pretty simple, and under hood heat seems to be lower. As far as performance gains, it's anyones' guess.
Interesting to note, that carburated cars have a greater problem with this since the vaporization of the fuel additionally cools the air and condenses the water vapor much more readily than direct injection systems. Hence, the carburator is heated from below by the exhaust passages cast into the intake manifold. Early engines did not have coolant passages cast into the carburators. The old triple Stromberg 97s used to ice up too often on my 41 Flathead Ford back in the days of my irresponsible youth. Kudos to the old timers on the Forum. SS eligible!