What does it mean when the 4wd engages when on "on" but not on auto?

 

I think the '04 is like my '02 was.
In auto mode, the transaxle puts 60% of the power to the front wheels and the remaining 40% to the rear.
In 4X4 mode, the power is split 50/50 and is much more noticeable.

Just because you can't feel it doesn't mean it's not working and in auto mode you will not feel it like when in 4X4 mode...ever.

To be honest, in the 14 years we had our '02 I could count on one hand the number of times we needed 4X4 mode and they were deep snow related. Auto mode worked very well for us.

 

From the owner's manual:

AUTO- Full power to front wheels, at all times; power to the rear wheels
as required by driving conditions. Used for street and highway driving.
ON- Full power to all wheels, at all times. Used for severe conditions
such as deep snow, deep sand or icy roads. Not intended for use on dry
(or merely wet) pavement.

• Do not operate the vehicle in the ON mode on dry or merely
wet pavement. Doing so will produce excessive noise, increase
tire wear and may damage driveline components. The 4x4 ON
mode is intended for use only on consistently slippery or loose
surfaces.

If your vehicle is equipped with the 4x4 system, a spare tire of a
different diameter than the road tires should never be used.
Such a tire could result in damage to driveline components and make
the vehicle difficult to control.

Shifting between 4x4 Auto and ON modes
You can move the 4x4 control between AUTO and ON whenever needed.