I was having difficulty understanding this as well, but I think mostly it's unimportant in a non-taxable account. Taxable is another story.
In a taxable account, according to MMM, tax-loss harvesting is worth a few thousand on a big portfolio, which makes the index the easy winner. This is based on his study with Betterment, and he believed that the tax-loss harvesting was worth both Betterment's NEW fee AND gains on top of it. Then there's commission on ETFs if you pay it. TDAmeritrade does free VTI but not VXUS, and free DRIP too. I think the chief reason to buy the ETFs is if you don't have a Vanguard account.
For other readers curious about this for non-taxable accounts...
ETFs based on Vanguard Index Mutual Funds vs ETFs simply named "Vanguard... index fund" are roughly equally safe (it would take an apocalypse to close out either of them and their growth will be extremely close).
Tax implications don't really matter in non-taxable accounts, so a fund is as good as an ETF there.
Some people talk about "reinvestment drag," or the time it takes money to be reinvested from gains in one vs. the other investment vehicle, but this seems like something I can't be bothered to worry about - the growth rates appear to be the same or similar, which seems to suggest there's not much investment dragging going on. My broker will DRIP if I want, back into an ETF, with a delay no longer than a day after being paid, which comes to a whopping two days. I guess you could calculate a loss of 4%(24/365.25)*(average annual deposit) in an ETF for that, which would be $2.63 a year (plus compounding) on 1k monthly deposits in ETF fees, but only if we're comparing it to an alternative rate of Immediate Reinvestment™ (which probably doesn't exist).
You would have the opportunity to use a stop-loss order in the market on your ETF to try to hedge against losses in a slump, where you couldn't with the fund, but you wouldn't admit to market timing here...
The last reason is commissions. If you pay a commission on VTI and VXUS or whatever you're using, you save (commission+(compounding on commission))*(number of times you traded your ETFs) for using the fund instead of the ETF.
TL;DR: Do you have 10k? Open a Vanguard account and get the funds. If not, buy commission free ETFs at one of the many brokers offering them now.