'y' remains as such because it hasn't been bound to a value just yet.

That's easy enough to test. var y=20;

  function foo(x) {
  var tmp = 3;
  var y = 20;
  return function (y) {
    alert(x + y + (++tmp));
  }

}

var bar = foo(2); // bar is now a closure.

bar(10);

This makes no difference. The alert runs once, and displays 16.