So I have been searching the Internet, but can't find a definitive answer to this. Basically, my understanding of the transfer case is that 4Hi locks in the front driveshaft so both differentials get power but otherwise the drive train stays the same. Whereas with 4Lo, it engages a sort of mini-transmission within the transfer case that takes the load off of the transmission and torque converter for hardcore off road situations where lots of torque is constantly needed that could otherwise start to over strain the transmission and torque converter.

Now when in 4Lo, you can only go up to about 15 or 20 mph before starting to get into really high RPMs. There are no higher gears to shift into. So my question is, is the regular transmission still engaged but just staying in one gear and operating through the transfer case or has it been disengaged entirely? I would imagine the torque converter is still engaged because otherwise the engine would stall out when stopped.

Uh

Power still passes right through the transmission and its gears in 4Lo. After the transmission, 4Lo engages a reduction ratio in the transfer case before it sends power to both driveshafts. The low range reduction ratio is 2.57 to 1. So divide all your forward gears by 2.57 and that's how short they are in low range. Flipped on its head, the low range gears are 39% as tall as the high range gears. I can't remember if low range will automatically engage 5th gear (overdrive) or not, someone else can answer that.

With the low range gears this short, the torque converter doesn't have to slip near as much at low speed, which helps lessen overheating. I have seen plenty of people overheat automatic transmissions offroad by trying to keep it in 4Hi on the really slow and hard stuff.

Ahhh, okay, now this is the kind of answer I was looking for. I have never felt the transmission shift in 4Lo though, it just seems to stay in one gear...? Or maybe I just didn't push it far enough to try (max I was willing to go was about 15 mph).

One thing I am confused on though, wouldn't lower range gears be taller, as wider diameter gears means more torque and slower rotation? How do shorter gears provide greater torque?

Unless you locked the transmission into "S1", it should be shifting in low range. Mine probably shifts to second at 3-4mph. It would be in fourth by 20mph.

Shorter gears provide torque multiplication. Better crawl ratio. In low range, my 4Runner can put the 278lb-ft of torque down at 4000rpm in 1st gear going 8mph if need be. That's not possible in high-range.

You said it shifts at around 3-4 mph, so I am assuming to get the 278 lbs ft of torque at 4,000 RPM at 8 mph it would need to be in S1? Just want to make sure I understand right.

Also not saying you are wrong, but how is it that shorter gears provide torque multiplication? For example, you'd use a longer length wrench to rotate a really stuck bolt as the torque is greatly increased, so why wouldn't larger diameter gears do the same?

https://www.youtube.com/watch?v=txQs3x-UN34

Gear ratios and force multiplication/reduction can be a complex topic to fully grasp. Understanding the basics will help conceptualize what is happening in a 4wd system with transfer case.

https://www.youtube.com/watch?v=K1qj8dHTmP4

Shifting in 4wd low. This was in my 2010 Tacoma and I took it because one guy said the locker would fail above 10 mph. Shaky cam potato video from 2011.

Toyota Locker: No Diff Explosion Over 5mph - YouTube

This is what happens when you engage low range:

Understanding PLANETARY GEAR set ! - YouTube