Since the thermostat on the OB is at the bottom of the engine and heat rises, how does the thermostat find out the water heating up around the cylinders needs it to open up to let the water flow?

 

This made sense to me on all other engines I have seen because the thermostat is on top of the engine where the heat buildup can cause the thermostat to open, allowing flow, which allows constant 'feedback' on the coolant temperature.

It works mainly by opening at a lower temperature than most other thermostats. Most cars the thermostat opens around 195°F. Subaru T-stats open at 170°F. Outgoing coolant temp is monitored by the ECU and if it is determined to be too hot the electric fan(s) will turn on, thus providing cooler incoming coolant.

 

But there is an inherent flaw in this type of cooling system design. The system has to be balanced in such a way that the radiator does not remove too much heat from the coolant. Else cool incoming coolant will cause the thermostat to close, blocking the flow, resulting in overheating. Ask anyone who owns a Ford Ranger pickup from the early to mid 80's, especially the V6 engines (me). They had a similar deal, thermostat was on the engine side of the lower radiator hose. The grille of the truck is wide open to the radiator, so when it's cold out and you're driving down the road, the coolant in the radiator gets cooled too much. The colder it gets, the worse the problem gets. The easiest solution was to cover the grille to block airflow over the radiator. But then if it warmed back up outside, the radiator might not be able to disperse enough heat, leading again to overheating.