In your lts.conf, you need lines like this:
SERVER = 192.168.0.254
XSERVER = XF86_SVGA
where you give the IP address of the server the clients will connect and the server to run locally on the client. It is a bit strange the first time or two you set this up, but it does eventually work. The file lts.conf.readme has useful information.
You may find a distro like K12LTSP easier to set up. They have a pretty smooth installation script. LTSP.org has all the info but they do not do much to make installation easy.