When you slide the lever to vent, it also opens a fresh air vent door up by the cowl I believe it is operated by vacuum. As well as actuating another one of those doors over by the steering column.
Its designed to let the outside air into the cab. The air bypasses the heater all together.
If you look at the diagrams in the sticky at the top of the "tech" page called YJ heating system, it explains the entire YJ heating system, and these vents are covered in it as well.
'87 YJ, 4.2L built and bored, 8" of lift, 8.8 rear, AX15/NP 231J, Tom Woods drive shafts, Flat fenders, 12,000LB winch, Custom bumpers, Rattle can paint job. Never completed...