Diagnostic Aids
WARNING: This page is about a different car, the 2009 GMC Yukon, 2009 Chevrolet Tahoe, 2009 Chevrolet Suburban, and 2009 Chevrolet Avalanche. However, it is still accessible from the selected car via links, so may be relevant.
Each of the two sensors show the transfer case movement in degrees. Find the sensor either the incremental sensor or the RPS that seems to not be showing a reading in degrees and is doing so erratically this is probably the sensor causing the DTC.