the 3" pipe is much larger then the flange area of the turbo. Thats why the pipe covers part of the flange and it has to have that dowel with the bolt going through the pipe right in front of where the turbo wheel is trying to let the exaust out. The turbulant air coming off the turbo wheel is being thrown into too big of an area causing more turbulance, stagnating the flow. You want the air to forced out when it comes off the turbin wheel so it moves out at the greatest volosity it can without creating backpressure.
Take a look at the gretty TDO5 kit......The down pipes that came with the kit start out at 2"