L2tpd's task is to decapsulate the layer 2 packets (which are actually only ppp packets), and send them to pppd. The used l2tpd is quite a simple program, also the configuration is pretty simple. As mentioned before, l2tpd has no real use in this configuration, but it is necessary to use it, as otherwise the client connection will fail. l2tpd has no encryption or security functions in this case. It's main use would be to stay layer 3 protocol independent, which in this case, does not make sense. Nevertheless it provides the IP assignment for the client (as seen below).
The configuration file of l2tpd looks like this:
port = 1701
[lns default]
ip range = 192.168.0.10 - 192.168.0.20
local ip = 192.168.0.1
require chap = yes
refuse pap = yes
require authentication = yes
hostname = LinuxVPNserver
ppp debug = yes
pppoptfile = /etc/ppp/options.l2tpd
length bit = yes
; should work. The best place to look for a list of all options is in
; the source code itself, until I have the time to write better documentation :)
; Specifically, the file "file.c" contains a list of commands at the end.