Because exhaust gas is a LOT colder than burning fuel perhaps?
Here's the simple version: After the fuel mixture is burned a MASSIVE amount of energy is transferred as heat and kinetic energy, the rate at which exhaust cools after the combustion process is very fast, then the small portion which is rerouted is run through a cooler at the back of the head where the temps are pulled down even further. The gas which remains, while hotter than the fresh air coming in (usually) is also inert meaning it doesn't burn when the next combustion cycle occurs... less burning mass less heat. less heat, less knock. less knock, the more timing advance possible. more timing advance, more power per a given amount of fuel. In the end there may be a *tiny* reduction in power, but only at certain points in the operation of the engine. and we're talking MAYBE 5HP... maybe.
I don't know why you're so worried about it other than "it doesn't look purdy"... I'm pretty sure that on the 7M-GE the system isn't even active when you've got it floored.
BTW, did you know this is how Honda get's such crazy good mileage out of their cars and is able to run their engines on fuel mixtures as lean as 60:1?
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