Transfer case issues

To be more specific, what are the inner working of a transfer case? The one on my truck (2001 GMC Sierra SLE 4x4, 5.3L) went out on me. The mechanic that's been working on my truck told me it's jammed. Initially it was the electric motor that switched it from 2x2 to 4H or 4L. I replaced that, but then it seems there is something inside that jammed the gears so it won't do anything.

I had it taken out for now, but eventually it needs replaced.
 
I talked with the mechanic about that and he said one of the gears are broke...?
Ne's not the typical shade tree witch-doctor, he works professionally at one of the mines. He used to work on cars before that, now working hard to get the money to start his own garage someday.
 
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