I beleive closed means it has its own hydraulic pump driven via PTO or other means (like electric or belt etc). Open means it uses the tractors hydraulic pump.
One would want closed if their tractor had a wimpy pump OR if they didnt want to have to up the RPM of tractor engine just to use the backhoe at good speed (again week tractor pumps work slow). You need a failry high gpm pump to run a backhoe right. I know our 2500 IH constructal has no problems with the backhoe. But I seen some that are SLOOOOOW as heck due to mismatch on the gpm needed.