The way I understand it, it allows you to group items together as a lod level.
The difference being:
LOD:
Several versions of one mesh, when you come closer, the better the version you see.
Imagine several meshes of a hut, forming a small village.
At a distance, the meshes are at their lowest LOD.
While we may have dropped all the weight of complicated materials in this LOD, alas, it is still at least one drawcall per mesh.
HLOD:
Same situation as above, but you group the hut meshes HLOD style (however that will work), and you create a LOD mesh that contains the whole village a one mesh with super low details.
At distance, the individual hut meshes are dropped and the mesh of the whole vilage takes over.
Et voila: only one drawcall and you still see that there is a settlement in the distance…
Please, please correct me if I got the concept wrong 