To put things very simply......

Torque is a measurement of Force applied in rotation, what determines this force (and is it's point of origin) in our engines is the size of the explosion in the chambers not the weight of the fly.
Changing the weight of the flywheel just adds or subtracts load/drag applied to that Force.

So....
Lighter Fly means less load and allows it to accelerate faster, and in theory more power and torque will be available at the wheels.
Heavier Fly means more load and will slow down acceleration, and in theory restrict power and torque available at the wheels.

But... lightening the Fly will loose you momentum, and so things like hill climbs, standing starts etc.. will require more RPM's than before.

This is worth a read http://www.torquecars.com/tuning/fly...lightening.php

Knife edging your crank has a similair effect but also reduces some of the counter weights vibration dampening, and so really the entire engine should be rebalanced after doing this.