I saw a statement that a transmission will be damaged by flat towing in neutral, How? Doesn't putting a vehicle in neutral disengage the transmission?
Unlike most manual transmissions that rely on "splash" lubrication, automatic transmissions use an engine-driven pump to circulate the fluid, which serves as both a lubricant and a hydraulic fluid for various servo actions within the case.
Flat towing in neutral spins various components in the output section of the transmission, many that require lubrication. Since the internal pump isn't running, and length or distance of towing in this condition can cause permanent damage.
The driveshaft should probably be disconnected in these conditions if a flat tow is not avoidable.
The transmission is always connected to the driven wheels, so when the car moves the transmission will turn. If the transmission is in gear then the engine will also turn, putting the transmission in neutral will break the connection to the engine. This means that the input shaft of the transmission is no longer turning, but everything else will be.
This is a big problem with most, maybe all, automatic transmissions as their lubrication pumps are driven off of the "engine side" of neutral – in normal circumstances this ensures that there is lubrication in neutral, but when the engine is stopped and the transmission is being driven by the wheels it is a *Bad Thing®."