Here's something I saved from a Looooooooooooooong time ago. I found it very interesting. Sorry but it is very long. It is an answer to someone's question a while back.
Explanation of 4WD Systems
This is normal operation for 4X4 AUTO mode of the Control
Trac system. When Ford originally introduced the system
in the '95 Explorers, it had a 2WD setting, but all you had for
4WD options was 4X4 AUTO and 4X4 LOW, there was no
option for locking it in to 4X4 HIGH (the system was this way
in '95 and '96). In '97, Ford changed the Control Trac system
so that it was always in the 4X4 AUTO mode and then allowed
4X4 HIGH along with the 4X4 LOW setting. In some engineering
articles I read on the Control Trac system (from an Automotive
Design magazine we receive here where I work), Ford originally
made the Control Trac system run in 2WD normally because they
were concerned about the reliability of the transfer case clutches
if the system was allowed to continually engage and disengage
them all of the time in normal driving situations (not only snow
and ice, but rain slickened roads as well). Through further testing
of the transfer case during the '95 and '96 model years, the
variable lockup clutches in the Control Trac transfer case were
found to be so "bullet proof", that Ford decided to change the
system at the beginning of the '97 model year to run normally in
4X4 AUTO mode (giving you somewhat of a computer controlled
all-wheel drive system). This also allowed them to do away with
the vacuum operated disconnect in the front differential that did
the switching from 2WD to any of the 4WD modes (as it was in
the '95 and '96 Explorers). Ford supposedly has rigorously tested
the Control Trac system and has found that the variable lockup
clutches in the transfer case are capable of more then 1 million
full torque lockups (going instantly from zero lockup to full lockup
while transferring 500 ft/lbs of torque through the transfer case,
much more than any Explorer engine could ever put to it) without
having any major amounts of wear on the clutch plates (according
to the article both Ford and Borg-Warner, who builds the transfer
case, have tested the system to this degree and have come up
with the same results). This system is also used in the Expedition
and has been so reliable (and has an industry reputation for working
so well) that companies like GM are now offering this same transfer
case as an option in all of their SUV's and even have it as an option
in their full size pickups.
The Control Trac system is only used on V6 powered
Explorers. The V8 powered 4X4 Explorers use a slightly different
transfer case that has a viscous coupled clutch system. This system
always operates in AWD mode and normally sends something like
35% of the power to the front axle and 65% to the rear axle. Under
slip conditions it can send more power to the front axle if needed and
less to the rear. This system does not give you any option to
completely lock the transfer case (as the 4X4 HIGH mode does in the
'97 and newer Explorers) and also has no LOW range available.
For the 90 some odd percent of the Explorers that are never actually
taken "off road" and are only used in normal street driving conditions
in snow, ice and rain this is not really a problem.
The lurching you feel is normal as the transfer case sends
power to the front wheels. The severity of the lurch depends on
several factors including how hard you are on the throttle, how much
power the system decides to send to the front wheels, and how
much traction the front wheels are able to get when the power is
applied to them. It can range anywhere from hardly being noticeable
to being hard enough to push you back in your seat and can be
accompanied by (as somebody else mentioned) a loud banging
noise. The way the system is designed, this constant cycling of
power from the rear to the front wheels, other than maybe being a
little annoying, should not cause any damage to the system.
Setting the system to 4X4 HIGH, which simply causes the variable
lockup clutches to go into full engagement which sends power
equally to the front and rear axles, will help in this situation.
However, if you really think that you can smell something that is
getting hot under these conditions when using the 4X4 AUTO mode
and it is giving you the indication that something isn't normal, you
should probably have a dealer look at it while it is still under
warranty, better safe than sorry.