The 70 series runs part time 4wd, which is alien to newer series Landcruisers. Basically the front drivetrain disconnects at the transfer case (which is also known as the centre diff on full time 4wd systems). On the road, it becomes a RWD. When you select 4wd on a part time system the transfer case acts as a locked centre diff.
The free-wheeling hubs are just that, they disconnect the rest of the front drivetrain from the wheels, so they free-wheel. Without having to turn the front drivetrain, load on the engine is decreased, wear is decreased, and fuel economy is increased. Having said that if all your bearings are in good order in the first place then improvements are small.
Free-wheeling hubs are normally engaged manually by turning a knob on the end of the hub. They can also be engaged mechanically via a cog which gets thrown into position when the front drivetrain spins faster than the wheel. Usually this set-up has a speed restriction of 30-40mph when engaged. To disengage these you need to reverse for a couple of yards in 2wd, which can be annoying when exiting a muddy field onto a fast and busy road with a fapping huge trailer on the back as I found out using the works Isuzu Trooper Toyota's supposedly "non-hassle" electric hubs are engaged by an electric motor built into the hub, activated by a switch on the dash. The idea is great and when mine worked I loved them, not having to step out of the cab to go for a play was a novelty I hadn't had before. Unfortunately the electric motors are more hassle than they're worth so permanantly engaging them is the easiest, cheapest, and most hassle free option.