PostgreSQL: Pass table as argument in function
The parameter _source in the MWE (minimal working example) is not referenced anywhere. The identifier source in the function body has no leading underscore and is interpreted as constant table name independently.
But it would not work like this anyway. SQL only allows to parameterize values in DML statements. See:

Error when setting n_distinct using a plpgsql variable

Solution
You can still make it work using dynamic SQL with EXECUTE in a plpgsql function:
CREATE TYPE dataset AS (id integer, t timestamp, x float);

CREATE TABLE source OF dataset (PRIMARY KEY(Id));  -- add constraints in same command

INSERT INTO source VALUES
    (1, '2016-01-01 00:00:00', 10.0)
   ,(2, '2016-01-01 00:30:00', 11.0);

CREATE OR REPLACE FUNCTION process(_tbl regclass)
  RETURNS SETOF dataset AS
$func$
BEGIN
RETURN QUERY EXECUTE 'SELECT * FROM ' || _tbl;
END
$func$  LANGUAGE plpgsql;

SELECT * FROM process('source');  -- table name as string literal 

See:

Table name as a PostgreSQL function parameter

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To make it work for any given table:
CREATE OR REPLACE FUNCTION process2(_tbl anyelement)
  RETURNS SETOF anyelement AS
$func$
BEGIN
RETURN QUERY EXECUTE 'SELECT * FROM ' || pg_typeof(_tbl);
END
$func$  LANGUAGE plpgsql;

SELECT * FROM process2(NULL::source);  -- note the call syntax!!

Detailed explanation:

Refactor a PL/pgSQL function to return the output of various SELECT queries