Being a complicated subject, I thought I’d take a moment to provide some handy visual representation that clearly explains the difference between the levels of NT LAN manager (NTLM) authentication.
A fairly old and insecure method of authentication, which computers tend to utilize, is LAN manager (LANMAN) authentication. Systems in a home or office “workgroup” will utilize LAN manager authentication.
Although this method of authentication is out-of-date, and has not been refreshed since 1999 (release of Windows 2000), it is still widely utilized.
With the advent of Microsoft Active Directory Domain Services (AD DS) in 2000 and their version of MIT Kerberos, the necessity and use of LAN Manager authentication began to reduce. However, this did not phase it out of existence.
Here is Microsoft’s article depicting these levels: http://technet.microsoft.com/en-us/library/cc960646.aspx
LMCompatibility Level of 0
LMCompatibility Level of 1
LMCompatibility Level of 2
LMCompatibility Level of 3
LMCompatibility Level of 4
LMCompatibility Level of 5