The term is typically used in bolted joint analysis; its the stress that goes around (bypasses) a hole. In metal structure analysis it is more or less equivalent to net area stress.
picture an open hole ... all the stress is "by-passing" the hole.
put a fastener in the hole ... the fastener reacts some of the applied stress, so there is a fraction of the applied stress "by-passing" the hole and the remainder is reacted as pinload.
draw a free body of the plate with the hole in it ... on one side you the total applied stress, on the other the "by-passing" stress and in the middle (at the hole) you have the balancing pinload.