the computer compares the two reading to see if the cat is doing it's job, if the cat is still installed then you should get a new one or hollow it out (whatever your ethics let you do). then the simulator tricks the comp into thinking the cat is functioning properly if it is not :2cents:
You should not remove the rear o2 sensor. The o2 simulator does not replace the o2 sensor - it only modifies the signal coming from the sensor.
i.e. even if the rear sensor goes bad, it won't matter, but you still need the sensor to be there. PLUS - if you ever have a visual inspection of your emissions system, it will be obviously (and illegal) that your missing an o2 sensor.