Level of Detail (LOD) is a way to limit the impact of meshes as they get farther away from the camera. Each LOD will have reduced triangles and vertices compared to the previous one and can have simpler materials. That means base LOD (LOD 0) will be the high quality mesh that appears when the player is near. As the player goes farther from that object, it will change to LOD 1 with reduced triangles and vertices than LOD 0 and as the player goes even farther away it will switch to LOD 2, which has much fewer triangles and vertices than LOD 1.
The following figure should give you an idea about what LOD does. The mesh on the left is base LOD (LOD 0), the middle is LOD 1, and the right is LOD 2.
Note
More information about LODs can be found at https://docs.unrealengine.com/latest/INT/Engine/Content/Types/StaticMeshes/HowTo/LODs/index.html.