Actualy it's pretty simple.
You go to the mall on blacktop: use 2wd
It's raining: use 4 full time
It's snowing: use 4 high
There's an earthquake with massive floods: use 4Lo
Al kidding aside:
2WD. Just that...2WD, rear axle only.
Full time: Your transfer case has an open differential. Which means you can use 4 wheel drive all the time, hence 'full time'. Why? because the front axle can rotate at a different speed as the rear or vice versa, so there's no binding. Why is this usefull? You can drive 4x4 on asphalt. It will kill MPG and wear your tires faster though, so use wisely.
4High...what happens when you switch to 4high: you lock up the center diff. So now you do get drive line binding if there is a differrence in rotating speeds between the front and rear axle. And that's bad! So we can only use 4 high on loose surfaces, eg mud, gravel, snow, (anything but paved roads) so tires can 'spin' and equal rotating speeds.
Sounds silly right? Why not use 4 full time all the time? Because when one of your axles starts to spin a tire you're stuck. All power will go to that freewheeling axle. That's why you want 50/50. To keep going.
See this video: http://www.youtube.com/watch?v=RcRBYpccP6g&feature=fvsr
4low...same as 4high except by a set of gears in the transfercase you get a 2.72:1 gear ratio which equals more power to pull you over any obsticals you may encounter.
Hope that clears things up a bit.