All torque converters have an inherent loss because the output is not directly connected to the input. A “lock up” equipped converter can overcome this loss by “locking” or directly connecting the input to the output inside the converter. The lockup is activated and deactivated by a solenoid inside the transmission. That’s what the electrical connection on the passenger side of the transmission is for.
Locking the torque converter when traveling at a constant speed in 3rd gear or overdrive will give you better fuel economy. My 87 truck has a 350 with a 700r4. If I’m traveling at a constant 60 MPH and with my left foot tap the brake pedal (unlocking the converter) the RPMs will jump 200 to 300. That’s how much power is lost in the converter.
A second benefit, and this is just my belief, I don’t know this to be fact and have never read anything that confirms this, is a transmission running with the converter locked generates less heat. Excessive heat will shorten the life of a transmission. Hopefully someone with more transmission knowledge will jump in and confirm this. (or tell me I’m wrong, won’t be the first time)
The 87s came with fuel injection controlled by an ECM and the ECM also controls the converter lockup. If I’m not mistaken the 86s also have an ECM even though they don’t have fuel injection, if so and the ECM is still in the truck you may be good to go by just sorting out the wiring. If ECM control is not feasible or you don’t want to mess with it, the second link I posted will lead you to a site that can supply the parts and instructions to make this work without an ECM.
Don