Well, I am not 100% sure about ShipSimulator, but LOD can include polygon reduction.
An object up close may have 50 000 polygons and a high-res texture. In the distance it may have 30 000 and no/low res texture. But that is particularly with Sandbox/open world games i.e your Grand Theft Autos, your Oblivions, etc..
I am not sure in SS, but animation quality in the distance can also be reduced [if LOD covers it?].