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When engaged, it means that the transmission will not shift any higher than second gear. While this limits the maximum speed of the vehicle (usually to around 40 mph), it provides a boost of extra power (for instance, if you happen to be towing a trailer, or hauling a heavy load, up a steep slope).
Similarly, shifting to 1 means that the car will remain in first gear, giving you maximum towing power at the expense of speed (and gas mileage).
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