The TC clutch does not release even in normal mode as you slow down until you get down to a certain speed. Tow/haul lowers this speed threshold. The main thing tow/haul does is change shift points. It holds gears longer when up-shifting to keep you higher rpms for more power. This is better for your transmission when towing. It also downshift earlier when decelerating to help slow down the vehicle quicker. This is not good for your transmission, but it is not that bad either.
Another thing that some transmissions do in tow haul mode is increase the line pressure threshold. This changes the shifts from nice smooth shifts to more firm shifts. This is good for your transmission because it decreases clutch wear and creates less heat due to decreasing the amount of time the clutch slips at each engagement/shift.