Normally, the transfer case lever will be in the "H" position, which means the transfer case is in High unlocked.
If you lift the spring latch under the knob up towards the knob, you will unlock the transfer case lever, and can now move the lever to either the "L" position, or the "H" Lock position.
If you move it to the "L" position (so pull the lever straight down), the transfer case will be in Low Unlocked. If you move the lever horizontally, you'll set the transfer case to the High Locked position.
In either of these two positions, you can then move the lever to the "L" Lock position, which means the transfer case will be Low Locked.
The "Lock" word means the transfer case is in the locked position (either High Locked or Low Locked) - it will spin the driveshaft to the rear diff, and the driveshaft to the front diff.
In order to lock the rear diff, you need to set the vehicle into Offroad Mode via the offroad switch, and then Rear Diff Lock switch, both on the upper panel. Until you do those switches, the diffs will remain unlocked. There are some excellent videos on Youtube by Robert Pepper (L2SFBC) regarding 4WD diff locking concepts and how they affect vehicle traction.