The bypassUpdates=true tells JSF to skip the UPDATE_MODEL_VALUES phase. So, your bean won't be updated with the values from the form.
I don't use seam-gen but I think it uses the bypassUpdates=true for pre-validating form inputs on the onblur event. You don't want to update your bean until you hit the submit button ;-)
I see Escobar but this renders forms for handling the edits of entities with many-to-one almost useless since it displays the "select <referenced entity>" link below every field. So imagine a regular user, he goes filling in the entities details then he is presented with a
select sthlink. He clicks in, goes to another form, picks the referred entity when he gets back the form is all blank.
After I switched the bypassUpdates to false at least it got back from this form with the properties still filled in.
At least for me if it isn't a bug it is a rather awkward behavior for an web application.