The lockup feature is for both economy and to reduce heat in the transmission by reducing slippage. To understand what a lockup torque converter does, you have to understand how one works. Although not quite 100% accurate because of the principals of turbines, this is a very close explanation. Inside the torque converter are 2 vanes. One is powered by the engine, one is hooked to the transmission input shaft. The torque converter is filled with transmission fluid. Picture taking a household fan, and place an identical fan as close as you can in front of it. Turn on only 1 fan, and it will cause the other fan to turn.
You can make the 2nd fan turn pretty fast, but never as fast as the powered fan, because there will always be slippage. That slippage is minimal in a torque converter, but it is always there unless it has a lockup feature. That slippage also creates a lot of heat. Lockup torque converters use a hydraulically activated clutch inside the torque converter to lock it together solid. This eliminates the slippage, and acts like having another gear added to the transmission.
Lockup torque converters are hydraulic, but most transmissions use an electric solenoid to control that hydraulic action, so the computer can control when it happens, so it doesn't happen in every gear. One transmission I know of that does it without any electronics is the 727 used in Jeep Grand Wagoneers. Its one of the few 727s with a lockup torque converter, and uses no electronics. The GM TH700R4 is a hydraulic transmission but uses an electric signal to lock up the torque converter.
Jim