LOD refers to 'Level of Detail' and is used to define the level of detail of a revit model. There is a common definition which was defined by the AIA in E202 which is used around the profession. It consists of five levels, labeled 100 to 500. Here it is in a nutshell.
LOD 100 - Massing model
LOD 200 - Model with generic model elements, may not have properties associated with them
LOD 300 - A model built with specific assemblies to the model elements and confirmed 3D object geometry
LOD 400 - Acceptable for shop drawing and fabrication
LOD 500 - As built, actual field condition model.
As Architects, we will mostly be building Level 300 and Level 400 models depending on the clients/contractor's needs. There is significantly more work involved in creating a Level 400 model as you must ensure all systems are coordinated against each other and the modeled geometries are accurate in all three dimensions and assemblies (wall) are accurate in dimensions and composition, however the power of Revit makes this task not as daunting as it may seem. Many argue this is the way to do it by default from the beginning of your project, as it is much easier to do it right away then have to go back and change everything later. Some also say if you are doing Revit this is the right way to do it and any other way is just lazy.
If the contractor wishes to use the model in any capacity (whether as a contract document or not) then a Level 400 model is required. To build a level 400 model you must also have knowledge of custom parametric family creation as you will undoubtedly run into the need to create a custom family for what you wish to model as one may not exist yet. This is leveraging the power of the "I" in BIM, one of the strongest capabilities of the software.
To see more detail on LOD and what is involved for each level here is a helpful links:
http://www.ipd-ca.net/Model%20Progression%20Spec%20V%2008-08-20.xls
