Let’s settle this, what is it?

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ediddily

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In my experience with the different settings, is as such on my 07 XLT, 298K miles:

2H: IWEs always Unlocked
4H/4L: IWEs always LOCKED
4A: IWEs Unlocked until rear wheels start slipping, then IWEs LOCKED and back to unlocked when normal wheel spin detected.

I've put my car on jacks off the ground entirely to see how this works and while in 2H the front differential and CVs are always spinning as 2H doesn't require the IWEs to be locked to the wheels. That's why you hear the IWE grinding from partial vacuum loss in 2H. According to parts diagram of the transfer case there are no clutch plates, only springs. I'm willing to bet that the transfer case is geared for only High and Low gearing for when the transmission is in High or Low, as must be the transfer case to deliver the appropriate power to the front from the transmission.

My personal experience on icy roads and 4A was when I tried to pass someone on the ice, my rear started slipping and I hear a BANG and the front IWEs engaged correcting the slip.

Now my car is old and I am a ******* and always wrong, but part of this debacle of reverse engineering and doesn't apply to 1st, 2nd, or 4th+ gen models, only 3rd gen basic model.
 
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