retirednut - Your posting might have gotten more response had you started a new topic. Although, this topic has gotten many postings and many viewings.
Your question on what the 3 valves do for you - They serve a couple purposes. Should your water heater fail (leak?) or be removed for repair, you could continue to operate your water system without major changes. The second reason is to make it easier to winterize. If you study the plumbing for a bit you will see that one valve shuts off the water going into the heater, the other shuts the water exiting the heater and the third (bypass) connects the incoming supply line and the heated water outlet line. For normal operation the valve alignment would be to have the in and out valves open and the bypass closed. For winterizing you would shut the in and out valves and open the bypass. This allows you to do two things. Drain the heater without the system refilling itself and secondly pump a minimum amount of antifreeze through the piping without putting 6 gallons of antifreeze into the water heater.
Your idea of draining and maintaining the heat at 59 degrees should be a good plan. I have the feeling that more people do their own winterizing than those that have their dealer do it for them. Start your generator at least twice during the winter to lessen the chance of evaporated gas residue building up in your carburetor.