I think there are two options that might apply in answering your question.

"Stereo" mode (useful for digital inputs such as CD's as well as two-channel analog sources) applies all bass management, which means that for "small" main speakers the left and right channels will get high pass and the sub will get everything below the crossover.

"Stereo bypass" applies to two channel analog signals and is also called "analog bypass." When analog bypass is engaged, the left and right speakers get the left and right signals without any processing - no conversion from analog to digital, no bass management, nothing but the original analog signal routed through the volume control. At the same time, a copy of the original signal is converted to digital and processed - if the mains are set to small, a low pass subwoofer signal is generated and passed to the sub while the mains are left unaltered. This is useful for analog sources that you don't want to have processed (CD players with high quality DAC's or turntables, for example).