Good Morning All
LOD provides performance benefits for all users, but especially those with low end computers. LOD does this in two ways. First, when you move away, the detail/poly count is reduced. Unless you are going to sit there close up to that one object every time you load Trainz, LOD will provide a benefit. About the only thing you could get away with, without lod, would be a single locomotive in your consist but only if you intend to have the camera locked as close as possible to the locomotive all the time for all users. Since this isn't possible (you can't stop a user zooming out a little bit - and even zooming out to see the loco and 2-3 short wagons is enough to drop to a lower LOD on most high detail locos!), you should have LOD
Second is that LOD (particularly the 'mesh-table' LOD system introduced in TS2009) is tied to the detail sliders. Lower the sliders, and the LOD transitions happen earlier. Increase the sliders, and they happen later. The main one of interest when changing the detail settings is generally the first transition, as increasing detail will move this further away, allowing high detail for longer. Some games may actually turn off the highest LOD at minimum detail settings, but this is generally only the case with 'closed' games (e.g. First Person Shooters, and similar), where all content is designed for the game. Without LOD, the detail sliders can't work (or can't work properly), and the game can never run well on lower spec computers...
A well built LOD should be seamless at the highest detail settings. If you can achieve it without effecting performance, it can also be seamless (or close too, as in transitions are subtle) at mid detail settings. Having it perfectly seamless with all detail set to minimum will generally hurt performance. The 'lm.txt' files are fairly set, but can still be adjusted a little by Trainz based on detail sliders.
Remember, LOD is about reducing detail, not removing it. For example, handrails should have the number of sides removed throughout the LOD, instead of just removing them when they are still visible. Once they're no longer visible on the screen, remove them (they will eventually get small enough on the screen to blend in on most vehicles).
A bonus, as a creator, is that LOD does allow you to put more polys into your models (and then reduce this properly through the LOD). This can take the form of putting more faces onto the wheels, making them smoother. Or into the handrails, boiler, or allowing you to include the inside motion gear (if visible). Another is to include a representation of the cab on the exterior loco as well.
For a small tank locomotive (complete 'exterior' model), 20,000-30,000 polys is a good ballpark figure if you have LOD
That said, you should always aim to keep it as low as possible. But, that 'low' isn't quite as low as it was 5 or 10 years ago
Regards