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The concept is pretty basic as you are turning a couple solenoids on and off to just shift between the gears. The purpose of the computer is to control and adjust the shift parameters....basically up and down shift timing and shift firmness based on speed, engine rpm, load, etc...
I believe what Kevin is talking about is if everything is working 100% properly the transmission will still upshift into 2nd gear when you reach maximum RPM even if you have the shifter pulled down into 1. In some situations that is not what you want to happen and I think the big hill climb is one of those. It would shift into 2nd and you could hear the engine bog down. It would also be nice to start from a stop in 2nd gear sometimes.
Back to the ECM receiving a signal that the t-case it is in 4 low, I was curious if this was the case and finally got a chance to confirm there is a signal that adjusts parameters if it is low range, just as said above. If the VSS was at the output of the transfer case on the donor vehicle (which assume it was since he had to modify the transmission from the donor to get a VSS) then it is not changing the speed signal itself, but would be changing the algorithm that controls the transmission shift points (which are based on engine RPM, vehicle speed, load, etc...).
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