As far as I'm aware, TES4LODGEN generates distant land files from all the mods in your data structure. Those files then appear in game, in the distant land - so geography and structures added by mods now show up in the ingame distance, rather than the vanilla distant land.
You don't quite have it right. It does nothing to the land itself, only VWD (viewable when distant) objects on it.
If you've ever add more mods, and want to update your distant land, you'll still need the original files; or the generator will not re-generate them with your new set-up.
That's not true. TES4LODGen makes all those original files obsolete, you don't need them at all. Read display name's post, he's got it right. If a mod has a _far.nif file, then TES4LODGen will update the files in the DistantLOD folder so that it will appear in game. The original DistantLOD files are not longer needed and can in fact screw up you other objects in your game if you install them. Leave all of that to TES4LODGen.
The description says it's a LOD generator, does that mean I can discard all LOD files that mods supply with themselves?
It's not an LOD generator, it's a VWD generator. There's a difference, though the two terms are quite often used interchangeably which can cause confusion. So no, you can't get rid of the LOD files that other mods supply, but you can discard anything they add to the DistantLOD folder.