All Wheel Drive (AWD) is a system in which all wheels on a vehicle are driven, meaning that power is applied to the road (or other surface) through each of them. The benefits of AWD are all derived from increased traction, and include better acceleration and superior road holding, especially when roads are slick.
Besides applying to vehicles with more (or less) than four wheels, all wheel drive is differentiated from four wheel drive (4WD) in that four wheel drive is not meant to be used on a road surface, but only off-road. This is usually because 4WD uses a transfer case to distribute power between the front and rear wheels, and they are both driven at the same rate. Four wheel drive systems generally use lockable front hubs — either manual, or electronic — in order to connect the front wheels to the drive system only when they are needed. In addition, the transfer case can generally be shifted between one of several modes, including one in which power is not supplied to the front axle.
Some AWD systems also utilize a transfer case which in their case contains some type of differential rather than just a gear set, although such designs are in the minority. Most AWD vehicles today feature a transverse-mounted engine, and all of the transfer case's functionality is built directly into the transmission or "transaxle", where a front wheel drive (FWD) vehicle's differential is located anyway. In particular, AWD systems on vehicles which are normally rear wheel drive (RWD) instead of FWD are more likely to use a transfer case, although not all of them do.
While entering or leaving a turn, the sum of the rotational speeds of the wheels at the front is different from that of the rear. Thus, the front wheels will attempt to drive the rear ones (or vice versa) and the result is at minimum chattering gears, and at maximum many broken components not limited to drive lines, differentials, the transfer case, the transmission, or even engine components.
Instead, AWD systems use a differential between the front and rear wheels. This is the same thing used between the left and right wheels on a driven "axle" (pair of wheels, not necessarily a literal axle.) This allows them to be driven at different speeds. This, too, has its limitations. First, a differential weighs more. Second, if an open differential is used, then if the front wheels are slipping, the rear wheels cannot get any power. The same is, of course, true of the converse. This can be solved either through the use of traction control (TC) systems which utilize the antilock braking system (ABS) to prevent wheels from slipping, or through the use of a limited slip differential (LSD). This adds weight, complexity, and of course cost to the system.
The best AWD systems (such as the latest from Subaru or Nissan) use limited slip differentials in all three locations (front and rear diffs, and the transfer mechanism) and may even use a computer-controlled limited slip, especially in the center. Subarus with VCD (variable center differential) can supply anything from 0 to 50 percent of the power to the rear wheels, with the remainder (up to 100 percent) being sent to the front wheels. This is handled automatically on behalf of the driver, though for competition it may be controlled manually through the use of additional hardware. Nissans with ATTESA-III AWD can transfer all of the power to either the front or rear wheels. Both use ABS-based TC in order to be able to individually control slippage at each wheel.