From BlenderWiki
This will be a great and much needed feature. Though I can't help but feel that it could use an extra generate option to add a subdivided model as a higher LoD. This would bring back the capability lost when multires ( http://wiki.blender.org/index.php/Dev:2.4/Source/Modeling/Multires ) was dropped from 2.5+. This would make the LoD feature more complete as it would allow both top down and bottom up LoD generation to cover both use cases.
I wen't into this more recently on BlenderArtists before finding out about your project, you can check that thread out to get a better idea of what I mean: http://blenderartists.org/forum/showthread.php?320442-Level-of-Detail-Modifier
