The DMD model format is a custom data format implemented by the doomsday_engine. A DMD model is similar to a normal Quake md2 model, but there are two key differences:

• Up to four Levels-of-Detail can be specified. LODs are additional triangle mesh sets. Each LOD uses the same set of vertices (which is a bit of a caveat).
• Vertex normals are stored in a more accurate fashion, which reduces artifacts in lighting and environment mapping.

You can convert normal md2 models into the DMD format using md2tool which you can find here.