When you are turning, you’d like the inner wheel to spin slower than the outer one. Passive mechanical LSD’s are speed equalizing, in that they force the inner wheel to spin the same as the outer, so when you are trying to corner a LSD can actually cause understeer.
But this is the lesser of the 2 evils, since without an LSD you’d have the inner wheel spinning (magnified if you have weight shift and more traction on outer wheels) and becoming a power sink of sorts. Conventional open diffs are torque equalizing, so the outside wheels puts down whatever the inner slipping wheel is putting down. If a wheel ever goes off the ground, you get get effectively nothing out of that drive axle.
This is why many OEM’s are going towards active torque vectoring clutchpack diffs, where you can pro-actively route torque to the appropriate side of a drive axles without messing with their relative speeds.
An LSD is also great for low-mu situations (ice or snow), where you aren’t trying to turn but instead not get stuck.
For an interesting read check out part of the book on the design of the GT-R/Skyline (page 65 of Nissan GT-R Supercar: Born to Race), not sure how well this link will work: http://books.google.com/books?id=0JWlaTqB8V0C&pg=PA64&lpg=PA64&dq=LSD+cause+understeer&source=bl&ots=8v8erasAbZ&sig=Rix8NYhOf7e0ZlJ5b3qN2ykb9xI&hl=en&sa=X&ei=xQUjVJrnM4OOyASwg4G4BQ&ved=0CCAQ6AEwAA#v=onepage&q=LSD%20cause%20understeer&f=false
