Here is the complete and truthful answer from a widely hated, self proclaimed CFB expert, that would be me:
The Bowls at that Time had Conference tie-ins, the loophole exception was that IF Noter Dame(sic) was ranked at a certain Level that gave that Bowl a chance to help decide the MNC then that Bowl could choose ND over a deserving "at large Team"( usually the highest ranked team still available) , mind you this loophole was never, ever , thought about being used because ND would never jump a Team with CFB pedigree like a Penn State that was independent at that time, same goes for Miami, also an independent, maybe Pitt another Independent
The ACC Champ never had a Bowl Tie-In at that time (IIRC), the ACC Champ would just go to whatever Bowl gave them the highest ranked opponent and best chance to win a MNC (once again, a crappy Job from the ACC Commissioner's Office to the detriment of ACC FB)
Our situation was effed up because, the Orange Bowl fooked it up for everyone in CFB, we were supposed to play Big 8 Champ Colorado as the highest ranked at-large Team to set up a 1 vs 1 MNC showdown of #1 Teams from 2 different Polls at that Time, remember there was no playoff formula and combing polls to come up with 1 "index" to determine which Teams played in which Bowls
The only Bowl that was fully locked in was the Rose Bowl:
Pac-10 Champ vs B1G Ten Champ.
Next was the Cotton:
SWC Conference Champ vs. "highest ranked at-large Team"
Then Sugar:
SEC Champ vs. " highest ranked at-large Team"
Then Orange:
Big 8 Champ vs " highest ranked at-large Team"
For example, if Bama was #1 at the end of the season and was SEC Champ, a Team like Penn State would choose the Sugar assuming they were the next highest ranked Team not a Conference Champ and locked into another Bowl, this was because playing a #1 ranked Bama Team would give them the best chance at a MNC.
The same would occur for all the Bowls , not the Rose.
This "Gentlemen's Agreement" was supposed to create the best matchups giving fans the best shot at 1 Champ, but often there were 2 Champs due to the Rose being locked in.
The Orange Bowl got greedy and jumped the gun and fooked everything up and promised the Orange Bowl bid to ND sometime around Halloween, because they expected us to lose at some point, they expected ND to win out, and because they wanted more Fans and better TV ratings for the Orange Bowl and they thought ND would give them just that, remember tbe NCAA had no control over Bowl Committees, the NCAA could only ban Teams from going to Bowls and Players that signed with Agents too early from playing in Bowls, but no control over the fairness & integrity of which Team got which slots (yet another reason to hate the NCAA)
Had Clemson won the ACC and was Co-#1 , they would have invited Clemson to play Colorado, at that time GT FB came out of nowhere we just didn't have the National respect to get treated fairly by the Orange Bowl Committee.
Back in that Era of CFB, if you had a great Season and weren't a "factory" you would probably get fair treatment if you had a second great season, the power structure back then just didn't reward Teams that came out of nowhere (just my guess ).
This major screw up by the OB is what led to the creation of the BCS -- that way the azzholes in polyester blazers that ran Bowl Committees couldn't embarrass CFB any more, and cheat deserving Teams.
Some of my details might be slightly off, but I'm pretty close to giving you the accurate history, maybe some one else has more insider Info?
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