It's possible that the previous owner left off the valve because it leaked or something. There should be a valve mounted to the inside of the firewall that protrudes into the engine compartment where hoses attach to it. Like cletis said, it's called a Ranco Valve.
The baffle in your heater only diverts the airflow to either the floor or defroster outlets. It does not recirculate the air.
To operate your heater you turn on the fan, adjust the flow of water to control the amount of heat coming out of the heater, and select heater or defroster as desired.
