
Definition:
A compressor bypass valve (CBV) also known as a compressor relief valve is a vacuum-actuated valve designed to release pressure in the intake system of a turbocharged or centrifugally supercharged car when the throttle is lifted or closed. This air pressure is re-circulated back into the non-pressurized end of the intake (before the turbo) but after the mass airflow sensor.
A blowoff valve, (BOV, sometimes hooter, dump, bypass, recirc, diverter or pop off valves) does basically the same thing, but releases the air to the atmosphere.

What it does:
The only job a blow-off valve is supposed to perform is to relieve excess turbo pressure that results from shutting the throttle rapidly under boost conditions.
How it works:
Blowoff valves are used to prevent compressor surge. Compressor surge is a phenomenon that occurs when lifting off the throttle of a turbocharged car (with a non-existent or faulty bypass valve). When the throttle plate on a turbocharged engine running boost closes, high pressure in the intake system has nowhere to go. It is forced to travel back to the turbocharger in the form of a pressure wave. This results in the wheel rapidly decreasing speed and stalling. The driver will notice a fluttering air sound. In extreme cases the compressor wheel will stop completely or even go backwards. Compressor surge is very hard on the bearings in the turbocharger and can significantly decrease its lifespan. In addition, the now slower moving compressor wheel takes longer to spool (speed up) when throttle is applied. This is known as turbo lag.
With the implementation of either a bypass valve or a blowoff valve the pressurized air escapes, allowing the turbo to continue spinning. This allows the turbocharger to have less turbo lag when power is demanded next.
A blow-off-valve is connected by a vacuum hose to the intake manifold after the throttle plate. When the throttle is closed, underpressure develops in the intake manifold after the throttle plate and “sucks” the blowoff valve open. The excess pressure from the turbocharger is vented into the atmosphere or recirculated into the intake upstream of the compressor inlet.
More info to come in the Encyclopedia section.
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