From Mod Wiki

MD5 LOD can be used to add lower-poly models which get swapped in as view distance from the object increases.

Static LOD for MD5 models has been implemented. The code automatically scans for X - 1 LOD files for each .md5mesh file loaded. X is defined by the r_MD5MaxLodStages cvar, which defaults to 4 at the moment. The code will look for the following files:

mymd5mesh.md5mesh (main model)
mymd5mesh_lod1.md5mesh (1st lod)
mymd5mesh_lod2.md5mesh (2st lod)
mymd5mesh_lod3.md5mesh (3st lod)

To create a MD5 mesh file to be used as a LOD stage, you have to make sure it has the same bone setup as the main mesh. During exporting, ensure to use the same commandline as well, but add -noJoints. Joint are only read from the main mesh file, so there is no need to have them stored in the LODstages as well.

r_MD5LodScale can be used to scale LOD faloff.