Kerensky,
That is the benefit of "Shift on the Fly", or a synchronized transfer case. In the old days, transfer cases used gears to engage and disengage the front drivetrain with no synchronization. With the introduction of chains on the full-time units in the mid-70s 4WD trucks came the ability to synchronize the 4WD engagement. Now you can shift in and out of 4WD at will, even with manual locking hubs on an X. Simply lock the hubs and drive with them that way. Then when you need 4WD, shift into hi and keep on truckin'.
AWD is a totally different animal. As has already been discussed, it uses a differential in the transfer case. This serves two purposes, first it allows the vehicle to steer easier on turns, although on sharp turns it still binds up, at least on the new GM systems. Subarus don't seem to have much problem with it.
Second it allows the torque to be split as needed. Using a system of clutches, it allows slippage from front to rear in much the same way a limited slip diff works. It can transfer torque from front to rear as needed. Some AWDs (Ford Exploder and older Land Rovers come immediately to mind) have a diff lockout in the transfer case that locks the front and rearend together to eliminate the clutch pack and act as a normal transfer case.
Now are you confused?
