My understanding is that the vehicle is predominantly FWD up until it senses slippage at one of the corners. At that point, the system distributed power to the appropriate wheels to ensure traction. So if you leave it on auto, it'll be AWD if needed. If you pay the 4WD pick, it does just that, no switching back to FWD for mpg optimization until unlocked. The Snow, Sand, and Mud modes should just be preset calibrations of the 4WD mode, again locked.
Not sure if it's true, but I thought I read on here too that it starts off actually in 4WD, and doesn't drop to FWD only basically until you're highwsy cruising. Hence, be no burn outs at Green lights, very little torque steer, etc.