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You must have a manual shift transfer case
What you describe is a plunger type switch on the transfer case, each of the two wires grounds a bulb, either 4H or 4L bulb
The switch's case is grounded to the transfer case which is grounded thru trans and engine
When you shift into 2WD then neither wire is grounded inside the switch, neither bulb is on
When you shift into 4H 1 wire will be grounded in the switch and that grounds the 4High bulb and it comes on
When you shift into 4L the switch ungrounds 4H wire and grounds the other wire that grounds the 4L bulb
The switches plunger rides in a Cam on the shift rod inside the transfer case
The 4L wire is grounded somewhere which is why the 4L light is on
Just as an FYI, most gauges and dash lights are operated by grounding in all vehicles, not a Ford thing
The dash gets 12volts with key on, so do all the gauges and bulbs
The "control wires" are the grounds for each gauge and bulb is the ground for that gauge or bulb
Oil, fuel, temp, are ground control
CEL, Brake, ABS, 4WD, Battery(not AMP meter) are ground controlled
The practical reason for this is less 12volt wiring running around the vehicle, so less chance of a short that blows a fuse, or melts a wire, if a ground wire shorts to ground, you just get a gauge that reads high or low, or a bulb the comes on when it shouldn't, no blown fuse or melted wire