Terrain LOD is the distant ground and large (cell sized) bodies of water.
At the moment DynDOLOD does not create, update or otherwise change terrain LOD or water LOD.
How the LOD water looks for an entire worldspace is defined by the LOD water record on the worldspace record of the highest plugin at generation time. DynDOLOD copies the records from the winning plugin to create the DynDOLOD and Occlusion plugins. Hence the load order needs to be finalized before generating the LOD patch.
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.
In any Skyrim version, the full terrain textures fade in a fixed circle around the current center cell to the diffuse terrain LOD texture. This fade does not use the normal map terrain LOD texture.
fSplitDistanceMult=multiplier of object LOD Levels
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.
The water LOD that is part of the terrain LOD meshes generation uses the water height found on the CELL record and default water height found on the WRLD record as fallback The default LOD water height on the WLRD record is not used.
The terrain LOD texture generation uses the texture layers, the vertex color and vertex normal data found on the first LAND record for a cell. The texture layers link to LTEX records which link to TXST records which contain the actual texture filenames being used.