By default the game attaches (loads) 5x5 exterior cells around the player. This is the active exterior cells area where basically everything happens. The size is defined by the uGridsToLoad INI setting. Changing this setting is typically not recommended for stability and performance reasons.
For the tools to generate LOD and the game to load the LOD files a ..\Data\LODSettings\*.LOD file needs to exist for the worldspace Editor ID. For new worldspaces the file can be generated with LodFileGenerator.
These different LOD types are basically optimized and pre-combined models or meshes and textures for a group of cells that represents the full content in the exterior cells. In addition not every little model has or requires a representation in the LOD area. These optimizations mean that distant LOD only uses a small fraction of the resources and performance that is required by the full content in the exterior cells.
The max render distance for everything is about a 100 cells. Because of the view frustum, the edges render further than the center, which can make for unsightly fading in case the current weather type does not limit the view with fog/mist.
For demonstration or debugging purposes the distant LOD can be toggled on/off by entering tll into console. When distant LOD is turned off, all that remains is the active exterior cells area, the neverfades and the large references. As can be seen in above screenshot.
If the player moves around, new rows of cells attach so that the player is always in the center cell. When new cells attach, the game first loads the ground and lowers the terrain LOD meshes by a fixed amount under the ground and disables water LOD for the cells, loads all trees and disables their tree LOD, loads all objects and their full models and then disables object LOD for the cells.
Having to wait for the full models to load before being able to disable the object LOD can take a noticeable time, in which the full models and their object LOD are both rendered for a brief second. In case the full model and the LOD model occupy the same 3D space (which is for example can be the case for structures), their different lighting and textures can noticeable z-fight (texture flicker).
Terrain LOD is separated into 4 LOD levels while object LOD is separated 3 LOD levels respectively. The LOD levels are named 4, 8, 16, 32 based on the number of cells for the edge length. For example LOD Level 4 covers 4x4 cells, LOD Level 8 covers 8x8 cells etc. Typically object LOD does not have a LOD level 32 - it can only be shown on the map.
The above screenshot shows green for LOD level 4, yellow for LOD level 8, red for LOD level 16 and blue for LOD level 32.