I am no expert on this and far from it, but I have been researching it for a while now and this is basically what I have come up with.
LOD is Level of detail, it covers a few different areas in the game, in this instance we are talking about mipmap bias lod. which means what level of detail do you want the mip map to cut in.
Mip map works like this, Main image, mipmap 1 (slightly smaller and a little blurier image of the main), 2, (smaller again), 3 etc, 4, etc, 5, etc, till you get down to a 4 pixel image 2x2 and some times a 1 pixel image, with each mip map the image is shrunk that little bit more.
The quality of the mipmap is determined when you save the dds file. (Much like most filtering when resizing, bilinear etc). You can also manually make mip maps, which is a lot of effort but your effort is rewarded because you get exactly what you want. The amount of mipmaps (how many mipmap levels are made) is also determined when you save the dds.
Mipmap bias tells the mipmap when to cut in, normally the mipmap would cut in at x meters and so forth, The main image would stay in view till it hits x meters then the game engine would remove the main image and load up mipmap 1, mipmap 2 would be x + x meters, mip map 3 would be x + x + x meters.
By setting the mipmap bias to a negative value you prevent the mipmaps from cuting in at x meters, if you set the bias to -1, mipmap 1 would then kick in at x + x meters, mipmap 2 woudl be x + x + x meters and mipmap 3 at x + x + x + x meters.
This gives you a crisper image when you look into the distance, but at a cost,, you start getting jaggered edges and shimmering, which is then when anti alias transparency needs to be used which sucks up a lot of processing power.
When utilizing the mipmap bias in the game, you need to make a decision on who your audience is. If you are aiming for the general market then you want to be careful how low you set your mipmap bias, If you are aiming for a market that has high performance computers then a negative mipmap bias will give very nice clear crisp images.
In general, I have decided to go with 0 mipmap bias and if I find mipmap 1 is too blurry, I manually edit the mipmap to fix it up.
I would highly recommend to use mipmaps and not a flat image, not only does it make things look smoother, but it puts less load on the system, loading up a full texture takes a lot of resources, a mipmap is a smaller texture hence it uses less resources.
A good experiment to do is using a road with white lines on the side. make a black texture and put white lines on each side but leave a bit of black at each side (much like the existing road textures in game), use 000000 for black and ffffff for white to make it stand out. Save 3 different versions of that image all at dxt1 no alpha with generated mipmaps.
In BTB, make 3 roads side by side with a straight and an S curve, make one road texture mipmap -4, make another -2 and the other 0. Load it up and you will see what I mean. Take some screenshots for reference.
Then go to your display control panel and turn anti aliasing transparency to super sampling and put your AA as high as you can 16 Q if possible and override any game setting. Fire the game up again and have a look, take some screenshots for reference, then compare the screenshots.
Something this experiment will not demonstrate is how much of an effect AA transp. can have on fps. If you want to see, load a heap of different objects into the project, trees, people, cars, etc etc, make it a lot so it starts to strain your fps, then try the difference between AA transp. off and on.
You can go on and on with experimenting, you can try huge textures 2048x2048 and small textures 256x256, in all, believe it or not, 256x256 looks better than 2048x2048, because if you think of it,,, look at your monitor, how big is it? mine is 1280x1024, i don't really need a texture any bigger than that anyway and I am never looking at the road with it filling my full screen, most of the time the road is only showing on less than a quater of my screen which means that in reality, it need to be no bigger than 256 x 256. A 2048 x 2048 texture becomes jaggered and shimmering. Because it is being shrunk down and is having to use on the fly filtering in the process, which can be quite random.
I will have to force myself to stop here, I cant stop myself from typing as there is so much to be said about this subject, I think I have covered most of it. I hope it helps.