Guss, this is to replace the old unit - you do not keep it.
Annie,
Find the crossover pipe on top of the valvecover - its the silver metal pipe running over the top of the engine. On the right side of it near the throttlebody - there is a small piece of rubber hose that connects the crossover pipe to a metal hardline. The hardline will run off the side of the engine past the distributor and make its way down under the turbo intake pipe. The stock bypass valve is down there, you'll find it by tracing the line. Its round and it'll have two 3/4" hoses and a vacuum line on it.
You may be able to directly replace the stock valve, or you might need to get some flexible hose of the proper diameter and get creative. As long as you have the in/out properly connected everything should be fine. At one point I replaced that metal hardline with a length of rubber hose, you might need to do that.
Maybe Grant can post up some pictures of his install?
-Matt