Underneath the water pump, the block has a second small hole on the firewall side that allows a little bit of water back into the pump - when the thermostat is open, this helps circulate coolant to that side of the cylinder sleeves before it goes out to the radiator.
When the thermostat is closed, it causes coolant to just recycle around the block, in addition to the flow through the heater core, throttle body and the oil/water cooler. The pancake cooler also warms the oil after startup to reach operating temperature more quickly, especially in cold areas.
Just keep in mind the fact that all of the "additional" features of the cooling system (TB, Heater core, Turbo, Oil cooler) all use hot water (at engine operating temperature) that has already passed through the block, not the water that just came out of the cold side of the radiator. The pump takes water in from the inlet pipe, including the hot water exiting the turbo and the oil cooler, and forces it through the block to the thermostat housing, where it gets either distributed or sent to the radiator.
Oil/water cooling is a good idea in theory, especially for engine efficiency reasons, it just has the problem in our case that it is failure prone, and cooling capability is limited since it uses water that has already been through the block. It's not really just a "cooler", its job is simply to keep the oil at the same operating temperature as the engine coolant.
Also going to a separate air/oil cooler also frees up a decent amount of cooling capability of the radiator under heavy loads. If you look at some newer cars on the market, even NA ones, you'll see oil heat exchangers that spend more time keeping the oil warm than cooling it down to reduce friction in the engine. It's just like air-to-air vs air-to-water intercoolers - they both have advantages and disadvantages.
