The tractor has a main dry clutch. The Hi-Lo unit has an internal wet clutch that allows up or down shifting of the Hi-Lo without clutching.
Basicly the Hi-Lo only allows a down shift and then an up shift back for what ever gear you are in. Say you are brush hogging in 4th gear and hit a heavy patch. With HI-Lo you shift to Lo. Almost the same as shifting to 3rd gear, but no stopping or clutching (non syncronized collar shift transmissions). After you get thru the heavy stuff, you shift from Lo back to Hi with the Hi-LO, and are back in 4th gear, no stopping or clutching.
So a Hi-Lo does not change the 8 speed to 16 speeds, it just allows a down shift and up shift back to the gear you are in without clutching.
PTO clutch can be either wet or dry. I have seen both ways.