Maintaining a manufacturer's specified engine temperature is crucial because it can have a significant impact on fuel economy, engine longevity, and exhaust emissions. The fact is, the hotter an engine runs, particularly a diesel engine, the more complete is its combustion process and, thus, the more efficient and cleaner it runs. You've noticed, no doubt, that diesel engines tend to run smoky when they're first started. This is normal, even for engines that are in a proper state of tune, provided that the smoke diminishes once the engine warms up.
Thermostats are small, finely balanced machines that live a hellish existence within a stream of highly pressurized, nearly boiling-ideally-coolant. The opening and closing of the thermostat regulates coolant flow and, thus, temperature. A thermostat is essentially a small copper cup packed with a pellet consisting of a mixture of wax and powdered metal. As this pellet warms and expands, it drives a piston that opens a valve at the bottom of the cup, allowing coolant to flow; this coolant is cooled by the heat exchanger in a freshwater system. The cooler coolant then causes the pellet to contract, closing the valve and slowing the flow of coolant, which causes the pellet to heat up once again.