These are direct air, and when dirt is blown into the collection box it is deflected downwards, with gravity taking care of the larger, heavier particles. Lighter particles such as fluff and hair that remain airborne are caught by a plastic mesh filter at the top of the container, similar to the lint screen in a dryer. The air then passes through a flat pleated paper filter (a bit like a shop vac cartridge filter) before exiting the cleaner through the exhaust grille at the front.
The slider knob above the exhaust grille is used to "flick" the paper filter and knock off large accumulations of dust before the container is emptied. Cleaning it properly required hands-on attention though, and the filter would need occasional replacement.
In reality these were a pain to deal with, which is why they didn't stick around long, and why they are sought after now. As soon as the mesh screen and paper filter started to clog, dirt would escape from the cleaner via any other route possible, hence why they are usually covered in a film of dust. Hoover took an excellent performing cleaner and hobbled it just for the sake of marketing a feature that, when all was said and done, created far more problems than the non-issue it was intended to solve.
The thread linked below shows the Turbomaster Freedom, which was this cleaner's larger, more deluxe cousin. Note how one example has been converted to use bags; this was Hoover's official fix in response to customer complaints about the leaky Permabag system, and the fact they had paid considerably more to have this feature in the first place was obviously considered to be besides the point. The Turbopower Freedom pictured above, however, could not be converted in this manner as doing so would have required a whole new rear body assembly. Whether or not Hoover offered some other form of resitution instead for owners of these models, I do not know.
http://www.vacuumland.org/cgi-bin/TD/TD-VIEWTHREAD.cgi?9140
