Terrain LOD is the distant ground and large (cell sized) bodies of water.
Use xLODGen terrain LOD beta to generate terrain LOD meshes and textures.
At the moment DynDOLOD does not create, update or otherwise change terrain LOD or water LOD.
Object LOD generation uses terrain LOD meshes to optimize the object LOD meshes by removing any triangles that are below the terrain or water planes. Hence terrain LOD should be generated before object LOD.
The multiplier multiplies the object LOD distances for the different LOD levels in order to define the distances for the terrain LOD levels. If the multiplier is near 1, both object LOD and terrain LOD switch their LOD levels at the same, which makes it even more obvious.