With the standard 'open' gear diff, more power is sent to whichever wheel is easier to turn. So in low traction conditions it will send almost all the power to whichever wheel has less traction, making it spin faster, and minimal power is sent to the wheel with more traction. You're probably familiar with this when 2 wheel drive car does a burnout and only 1 wheel spins - this is because it has an open diff.

When you install the lock block both wheels turn at the same speed regardless of traction. So under low traction conditions the car is able to break traction at both wheels simultaneously. If you put heavy grease (e.g. tamiya AW grease) on the internal diff gears then you can achieve a 'limited slip' action which is somewhere between locked and open.

For drifting, you want to put the lock block in the rear and have the front diff as open as possible (minimal grease on gears). This will allow both rear wheels to break traction and the rear of the car to slide, meanwhile the front will spin 1 wheel and generate minimal forward traction which would otherwise cause the car to straighten up out of a slide.

For racing, you want to put the lock block in the front and have the rear open. This makes for a handling characteristic which tends to understeer rather than oversteer, making it easier to control. The car generally goes in whichever direction the front wheels are pointed and the rear does not easily slide since only 1 rear wheel will break traction if too much throttle is applied.