The 4WD indicator switch is located on top of the T-Case. (Hard to get to). It has about 30cm cable on it that goes into a round connector to the harness then.
Read the diagram right to left. Consider lower part only (ignor the neutral position switch...)
BY (right) is positive. WB (left) is negative. The BW and B in the middle is a bit confusing as it actually is positive, too, just switched.
The TRANSFER CONTROL SWITCH is a toggle switch, I suppose, consisting of upper and lower switch in the diagram.
Also the TRANSFER CONTROL SOLENOID is toggeling: Unlike a relay, which only actively applies magnetic force to engage and falls off by springload, the solenoid applies magnetic force to engage AND disengage (two coils). It actively pushes and pulls.
The TRANSFER L4 POSITION SWITCH is most likely not the same switch that controls the 4WD indicator light, as it is associated to L4 only.
I also think we are rather looking at toggeling 4H 4L here. 2WD is not the topic here, I guess.
Think trough the static condition of L4 engaged, first (so, the oposite conditionof what the diagram shows):
When L4 is engaged, the TRANSFER L4 POSITION SWITCH is closed, which makes the TRANSFER CONTROL RELAY to engage (coil circuit).
The load circuit provides power to the TRANSFER CONTROL SOLENOID lower coil, which *keeps* it in L4, IF (!) the load circuit gets fed some positive from the TRANSFER CONTROL SWITCH *lower switch*, which therefore must be engaged.
Engaged means: Upper switch open, lower switch closed.
Hence, if the switch is disengaged, this solenoid circuit collapses and the tcase goes out of L4.
But the system is not expecting the L4 to jump out by itself:
When disengaging the TRANSFER CONTROL SWITCH, this actually means the upper switch is engaged, activating the upper solenoid coil, which actively moves the Tcase out of L4.
The diagram shows the situation disengaged.
The thing to recognize here: The t-case actuates the TRANSFER L4 POSITION SWITCH mechanically. Only if in L4 the lower circuit remains engaged. If the Tcase is forced out of L4 mechanically, the circuit collapses and makes the solenoid to collapses, too, instead of working against the mechanical force (which would destroy it).
On the other hand, the lower circuit is useless before the Tcase actually gets into L4, because the TRANSFER L4 POSITION SWITCH is open. It requires a different force first, to actually get into L4 and close the position switch....
This is what the vertical BW in the middle does: It engages the TRANSFER CONTROL RELAY coil also in 'not L4' (which rather is 4H, not 2WD).
But this has no effect, as the load circuit of the relay gets no power from the lower TRANSFER CONTROL SWITCH *yet*.
Now (I guess) languishment / sluggishness comes into effect:
If you now press the switch to engage L4, the upper switch disengages and the upper solenoid collapses, letting 4H go, and the lower solenoid engages, pulling into L4. Portions of a second later however, the relay coil circuit gets cut from its supply by the upper switch via the vertical line...
But Vacuum solenoids take a bit to languish , so the movement continues, long enough to engage the TRANSFER L4 POSITION SWITCH, which takes over, revives the relay coil circuit and continues pushing into and holding the L4.
I guess, this is how it works...
If anybody has a smarter idea or better insight, just rectify me.
The above is based on thinking over it, not knowledge.
Good luck Ralf