A thermostat is a valve that stays partially shut when cold, then opens up when it hits a certain temp. Temps can range from 120-190 deg. On the B5, it uses a mechanical thermostat set at 190deg. When closed, it blocks most of the coolant flow into the radiator, so that the car can warm up quicker. Once temps reach 160-170, the thermostat will begin to open, passing coolant through the radiator, and then completely open when the it's at 190. This is when your car is completely "warm", and your temp gauge need is in the middle.
The B6's thermostat works the same way, but on an electrical signal. Your ECT (Engine Coolant Temp) sensor is what see the coolant temps. As temps start to climb, it begins to open up (like a throttle body) until it opens completely.
So to answer your question, a waterpump simple CIRCULATES coolant through out the block, head, and the turbo. Inside the waterpump is an impeller shaft (fan blades). The waterpump is spun by your crank (via crank pully/timing belt, or drive belt). If the waterpump WERE to fail, you simply wouldn't circulate coolant... meaning that coolant temps would climb VERY fast, giving you hotspots and eventually make you overheat because the coolant cannot flow through the radiator and cool. Your thermostat (unless it was broken), would open up once the overheated coolant reaches it's temp. Even with a now fully opened thermostat, a failing waterpump would not be able to circulate the coolant through it, and you'll still overheat.
We have two ECT's in the car. One operates the gauge, the other feeds raw data into the ECU tell it when to open the thermostat.
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