OK, the lod out distance should be set to what you can see, ie, if you have a 500m area where the item is visible, you don't want to lod it out any earlier than 500m, but if there is a 20m section (like a sharp hairpin) then you can lod the object out earlier because it goes out of view anyway.
You can check what is in view in Simed by using the eye view function under the view menu. (make sure to remove non rendered things like xsectors and shadow and collision objects
You can measure the distance in simed, right click > Memorize XYZ, then on the bottom info bar, on the far right after the xyz is a distance indicator.
XYZ: ### D: ### <- thats the distance from where you last memorised zyx.
By doing it this way, you minimise having to constantly check it in game. On that note, you should be using the scene viewer to do quick checks on things, it loads a lot faster than the game and it has a lot of info like fps, how many things loded out etc etc.
If you have a 1000m open area and a high poly model you want to lod out, you might want to build a copy of the model and lower the poly count, then use it as a lod replacement. If your unfamiliar with 3d editing, let me know and I will type you up a quick tut on how to reduce polys quickly using Blender.
Weather or not the game engine will shut down faces that aren't in view I do not know, but I'd like to know.