Quote Originally Posted by jmg8550 View Post
The transfer case is allowed to slip to a point, and whatever the computer commands for pressure. The differentials will not slip because they are gears. I would imagine the transfer case operates sort of like an automatic transmission with clutches, they increase or decrease pressure.
This is exactly how it was explained to me during my brief period as a (shudder) Subaru salesman. I love Subarus, I just hate selling cars.

The crude explanation I remember for the mechanical AWD system was that it uses the heat of slipping clutch-style plates against each other to warm up a fluid that in turn put more pressure on the plates, thus causing them to slip less and send more power to the shaft that was slipping less.