What is a Bypass Capacitor???

What is a Bypass Capacitor?

0.1uf Ceramic Capacitor to Filter DC

A bypass capacitor is a capacitor that shorts AC signals to ground, so that any AC noise that may be present on a DC signal is removed, producing a much cleaner and pure DC signal.
A bypass capacitor essentially bypasses AC noise that may be on a DC signal, filtering out the AC, so that a clean, pure DC signal goes through without any AC ripple.
For example, you may want a pure DC signal from a power source.
Below is a transistor circuit. A transistor is an active device, so in order to work, it needs DC power. This power source is VCC. In this case, VCC equals 15 volts.


DC Power Source for Transistor

This 15 volts provides power to the transistor so that the transistor can amplify signals. We want this signal to be as purely DC as possible. Although we obtain our DC voltage, VCC, from a DC power source such as a power supply, the voltage isn't always purely DC. In fact, many times the voltage is very noisy and contains a lot of AC ripple on it, especially at the 60Hz frequency because this is the frequency at which AC signals run in many countries.
So although we want a pure DC signal, such as below:
Pure DC Voltage 

Many times, we get a noisy signal that looks like:

Noisy DC Voltage Signal
A DC signal such as this is actually very common. This is undesired because it adds noise to the transistor circuit. Therefore, this noisy DC signal will be imposed on the AC signal. So the AC signal which may have music or some type of recording will now have much more noise.
This noise which is on the signal is AC ripple. Many times when using a DC power supply connected to an AC power outlet, it will have some of the AC noise transfer to the DC power voltage. AC ripple can also appear from other sources, so even batteries can produce noise.
To eliminate this AC ripple, we use a bypass capacitor. So our transistor circuit above will have a bypass capacitor added to it:

Bypass Capacitor for a Transistor Circuit
A capacitor is a device that offers a tremendously high resistance for signals of low frequencies. Therefore, signals at low frequencies will not go through them. This is because signals (current) always takes the path of least resistance. Therefore, they will instead go through the resistor, RE. Remember, again, this is for low frequency signals, which is basically DC signals.
However, capacitors offer much less resistance at higher frequencies (AC signals). So AC signals will go through the capacitor and then to gorund. Therefore, DC signals will go through the resistor, RE, while AC signals will go through the capacitor, getting shunted to ground. So AC signals get shunted to ground. This is how we have a clean DC signal across our circuit, while AC noise imposed on it is bypassed to ground.
How a Bypass Capacitor Works 

So a bypass capacitor blocks the DC from entering it by the great resistance it offers to the signal but accepts the AC noise that may be on the DC line and shunts or bypasses it to ground. This is how bypass capacitors work.