Compartmentalization/ Branch Collar
Intro
This segment may take a few reads to really absorb, but I believe it is valuable to understand the branch collar and compartmentalization of trees for proper bonsai cultivation. In bonsai we mainly use concave cutters to cut off branches with an indent as (shown below) so when the wound “heals” it looks flat with the trunk.

This is much more pleasing to the eye, but for larger branches this is not horticulturally savy.
Branch Collar
Trees are highly compartmentalized creatures which means they are built from many connected segments. The branch collar is the most fundamental part of plant compartmentalization and additionally it acts as the attachment hub for branches to a trunk. The physiology of the branch collar is the shape of a tear drop as seen below (Shigo, 1999, p. 213).

As seen above this tear drop shaped collar only has a significant attachment point to the tree on the bottom of its structure. Alone the tear shape on the bottom of the collar leaves the branch precariously attached. Fortunately, the trunk will send out its own tissue and envelope the rest of the branch collar with epidermal and cambial tissues holding it in place. This creates an interwove matrix of collar and trunk that provides tremendous strength. On the bottom right of the picture above you can see the interwoven branch collar and trunk. The structure that envelopes the collar as seen above in segment 4 is called the trunk collar.
Function of the Branch Collar
The branch collar gives the tree an ability to quarantine off whole branches if a serious pathogen infects the branch. This barrier like system originates in the branch collar where there are multiple protective zones that retard and often stop the movement of pathogens as seen in the photograph below (Shigo, 1999).

In the photo above the letters A-D show the different protective zones trees commonly exhibit. The letters C and D are in the branch collar and during proper pruning this zone is not cut off. The two arrows adjacent to C, show where pruning cuts should be made. Trouble arises when cuts are made beyond this zone. Cutting beyond this zone is to the detriment of the tree’s long-term health. The rule is simple, keep the collar and let the tree do the rest.
Co-dominant Stems
Trees have one notable exception to the branch collar called a co-dominant stem. These are extensions off a branch that do not have a branch collar. In figure 4 you can see the formation of several co-dominant stems (Shigo, 1999, p. 224).

Since co-dominant stems lack branch collars, they can be pruned off flush or concave with no additional ill effects. Co-dominant stems also make the spread of disease far easier via these regions of the tree since the protective zones are absent. Co-dominant stems tend to be most abundant in the fine branching of the tree.
Application to Bonsai
Now when it comes to applying this information to bonsai, we must be mindful when making large branch cuts to properly leave the branch collar. By leaving the collar you are keeping the tree’s evolutionary protective zones which provide defense against many pathogens. Since our primary goal in bonsai is to maintain the tree’s longevity this technique should be used as often as possible. Remember the collar does not exist for co-dominant stems (smaller twiggy branches) so only apply this pruning technique where necessary.
References
Shigo, A. L. (1999). A new tree biology. Shigo and Trees, Associates.