The idea is to get proper lubrication. Manual transmissions and gear type transfer cases like your Dana 300, rely on splash lubrication. If there is no movement of the gears then the oil is not splashed up into the bearings.
In manual transmissions when in neutral with the engine off the counter gear in the bottom of the case does not turn as it is linked to the engine. The syncro gears on the main shaft mesh with the counter gear so they also do not turn. So it the main shaft is linked to the wheels it is the only thing turning even though there is no real load on it the surface between the main shaft and the gears will eventually run out of oil and cause damage.
The same applies in the Dana 300 transfer case. The gears are all linked to the transmission so they are not turning. However, the output shaft is so its bearings and the surface between it and the low range gear can run out of oil. I can only assume that the reason for locking the hubs is in the hopes of the front output shaft splashing enough oil up to lubricated it, I would not hold much hope for this working well as the sliding collar on the front output will be about all the is turning and it is smooth so it will not fling much oil. To make matters worst the Dana 300 is installed far from flat so the oil has to be slung a long way compared to most other cases. Still conventional wisdom is to remove the rear drive shaft on the Dana 300. Some have welded tabs to the sliding collar on the front output shaft to aid in splash lubrication when towing with the front hubs locked.
Other gear driven transfer cases like the Dana 20 are installed much flatter so the oil does not have to be slung up as far. Also they use the low range gears as sliding collars so if the front hubs are locked the whole low range gear will be turning and be able to move a lot of oil.
If it were me I would put the transmission in gear, the transfer case in neutral, pull the rare drive line and leave the hubs unlocked. At least if towing for any real distance.
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Wilhelm
I will start using Metric only when the duodecimal system is adopted!!
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