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LOD Meshes are completely swapping out the geometry of the high poly object for a lower detail object as it gets furher into the distance. At Le Mans this has been used on Armco and Tyre Stacks to reduce the number of tris rendered, and allow for higher poly LOD0 meshes. See this page for more details.
When to use a LOD Mesh is a difficult question. The following guidelines are some good rough rules to stick to:
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