Unless LFS models manifold vacuum, which I'm sure it does, you won't get the full engine braking effect of a real car. When I drive the FBM I use engine braking as a backup if I over shoot a corner by a couple km/h, so I assume it actualy works like it does in real life.
On gasoline engines it's actualy the intake stroke that provides braking effects. Because the engine is still firing, there's virtualy no loss on the compression stroke. Infact, the compression stroke tends to act as a spring and because of the absence of a butterfly valve on diesel engine, you don't get engine braking on them at all without special equipment.
This is a break down of how it actualy works.
The butterfly valve closses when you let off the throttle restricting air flow into the pistons, because they where previously taking in alot more air. It generates a powerful vacuum in the intake manifold, the effect of this is alot of restriction during the intake stroke, now the engine has to act as a pump, but not a pressure pump, a vacuum pump. The bigger the bore, or the smaller the idle airflow into the engine, the more engine braking occurs.
Just consider the fact that vacuum is the only thing preventing the engine from screaming its head off and blowing, its a manifold vacuum that keeps it at idle when the throttle is closed.
A good example of this is my single piston engine on my dirt bike, If I lift off in first gear, The engine drops to idle and my speed drops accordingly. If I accelerate so that the engine is spinning at 5000rpm in 2nd gear and downshift to 1st, the engine will go up to about 7000rpm or around there. but if I keep the throttle open, I will not experiance any kind of braking effect provided the throttle is open enough to alow air flow for that engine speed. I can even cut spark which would completely turn the engine into a compressor, and the only thing that would slow down the bike by a noticable amount is closing the throttle.
Engine braking on my bike is extreemly severe in first and second, its strong enough that I've slid up to the bars once because I snapped off the throttle to fast. If it where compression, I'd almost fly off the bike if I where going 7000rpm in second and the spark suddenly cut.