Mike:

OK guys, grease is definitely a lubricant, but what exactly is its
effect in a bike wheel hub?

Grease is basically a source of oil for the lubricated system. It is
made up essentially of two compounds, oil and thickener (or carrier).
Either or both can have additives.

The carrier carries the oil and releases it at the appropriate
occassion, when the bond between the oil and carrier is broken. This
occurs at particular temperatures and/or pressures. The carrier can
also act as a lubricant by sticking to the surfaces of the contacting
elements. This carrier film eventually wears away and must be
replenished, either by more oil or more carrier. Since grease (ie both
carrier and oil) doesn't flow readily, most of the lubrication is
accomplished by the oil that is released from the carrier.