The panel you show is for subdividing, i.e. increasing the mesh density rather than reducing it. The add-on already creates a subsurf modifier if SubDIvision Level > 0. Though I now notice that it sets the render level to SubDivision Level and the viewport level to one less, whereas Render SubD Level is ignored. Not sure if that is worth changing.
LOD info is added from Edit > Object/Figure > Geometry > Add Level of Detail in my version of Daz Studio. It then asks for an obj file which presumably contains the low-poly mesh. It is these files the I cannot find. I found some info at http://docs.daz3d.com/doku.php/artzone/pub/software/lod/start, but it appears to be outdated.
Yes, the add-on has some tools for reducing mesh density, but these are generic tools which do not produce very good geometry. Hand-made low-poly meshes would presumably be better at preserving edge loops etc, which would be valuable. Though in practice it is usually not the character that is the big problem, but clothes and in particular hair. It does not help to reduce the character from 20 K verts to 4 K or even 1 K, if the hair mesh contains 200 K verts, which is not unusual.