Towing a jeep
Nope, thats the way I towed my 2000 Jeep Cherokee. You don't really leave the key "on" per se, you just don't leave it "off". The off position, where you can remove the key, locks the front wheels to whatever turn radius they are at. "On" is between that position and "start", this leaves the front wheels unlocked. Back in the old days prior to electronic ignition, when distributors used "points", the points could be burnt if the ignition was "on" and the points happened to be in the cam position of closed. Todays electronic ignitions don't use points so that problem is no longer with us.
If the wheels are locked, or the key is in the "off" position, the front wheels cannot track around a turn, they'll just drag. I also wrapped my seat belt around the steering wheeling to keep it from oscillating back and forth. I don't know if that was really necessary, I heard someplace that was a good idea so I just did it.
Good luck and welcome to the forum.
OOps forgot, for an auto transmission, transfer case in nuetral, yeah, in so doing the transmission is "locked out" so it dosen't really matter what gear the transmission is in. I was told to put mine in "park", so I did. Not really sure about a manual transmission, but I would suppose the same thing applies.