From the 4x4 Troubleshooting thread
HUBS
Hubs (automatic & manual) are used to lock the front wheels to the axles allowing the wheels to be powered. Locking is a purely mechanical action and is insensitive to the electronic 4x4 system. For manual hubs the locking occurs when the hubs are turned to the "Lock" position. For automatic HUBs the locking occurs when the axle shaft begins rotating within the HUB, which causes the splined engagement mechanism to idle up on the engagement cam which locks the hub in the current direction.
Any clicking or ratcheting noise from the front wheels) is a sign the automatic hubs are not locking.. An Easy test is to get under your truck and rotate the front axle shafts (not the drive shaft).. Rotating the axle shafts by hand mimics 4x4 being engaged. After a few revolutions an Autohub should lock in and be impossible to turn.. If you are able to keep turning the axle it indicates the hub is bad/gunked up. For manual hubs the test would be to get under the truck with the HUB unlocked (4x4 off) and verify the axle shaft rotates freely. Next lock the hub, the axle shaft should be impossible to turn. If you are able to turn the axle it indicates the hub is bad/gunked up.
To test for a blown Auto Hub;
1) Put T-case in 4x2 (disengage 4x4)
2) Crawl under the truck and rotate the axle shaft (any direction). After several revolutions the autohub should click and lock. If you can still rotate the axle shaft the hub is blown..
3) Repeat #2 on the opposite axle shaft..
More on Automatic HUB engagement:
When you engage 4x4 the front drive shaft will spin and send power to the diff and then to the axle shafts.. The axle shafts will begin rotating within each autohub; after a few revolutions the engagement cam will have idle up within the autohub and caused the autohub to lock. Once this occurs on both hubs the wheel with the least traction will get power and begin to rotate.
:scratch: Let the above sink in for a minute.. If you try to free a vehicle by quickly going from Forward to reverse you can easily blow an auto hub.. When you reverse direction the axle shaft obviously spins in the opposite direction causing the auto hub to UNLOCK and then LOCK in the new direction.. Under low power this isn't a big deal, but if you're on the gas heavy it can definitely damage the hub... Manual hubs are either locked or open, as such they are unaffected by rocking a vehicle in the manor above.