I'm going to go a little deeper into this one, I hope it'll clarify things. Diesels and governor operation are different enough from gas engines typically found in cars or trucks that I think it's worth digging deeper.
There are several different types of governor available to the engine manufacturers. Cost and accuracy are directly related, as is the degree of complexity.
Electronic and hydraulic governors have a very high degree of accuracy, usually within 1 to 2 rpm speed variance under all load conditions within the capacity of the engine. They are normally only seen in power generation units where that kind of accuracy is needed, or in the case of the hydraulic controls where more output force is needed to control the fuel rack (as in the case of the frigate engine I mentioned earlier, which is electronic control over a hydraulic actuator.)
In our world of tractor and automotive type diesels, we don't need that kind of accuracy in speed control. PTO speed isn't that critical even when running a PTO generator, unless you want to run co-generation with the electric utility, which is highly unlikely.
So, we typically have a mechanical flyweight type governor. For anything a tractor was intended to do they are perfectly suitable, and far more cost-effective.
They do have one inherent characteristic that impacts on this discussion, in that they will reduce the speed setting as load on the engine increases. This isn't a design goal, it's a limitation of that particular governor type.
So for example, imagine you are running a brush hog at a steady 2300 rpm engine speed, over a sparsely grown field. Near the edge of the field is a heavily weeded, densely grown area. As the tractor and brush hog moves into this area, the rpm drops slightly as the load on the engine increases.
I'm not talking about an initial drop than recovery back to 2300 rpm, I mean it drops down to maybe 2100-2200 and stays there until you come back into the lightly grown areas and the load on the engine decreases. The governor still has control over engine speed, and the engine isn't overloaded.
It's hard to see unless you're using the throttle lever and not a foot pedal, our natural reaction from years of operating cars or trucks is to press harder on the pedal to bring the speed back up.
This doesn't mean the engine is "lugging" or overloaded, just that the governor is doing it's job as best it can within it's mechanical limitations. With a hydraulic or electronic governor (set for "0" speed droop) you would see no drop in rpm, just a deepening of the engine exhaust note as more fuel was added to compensate for the increase in load. Exhaust temperature, turbo speed, and cylinder pressure also rises.
Lugging occurs when the ignited fuel mixture has no where to go, the piston is moving too slowly to allow the combustion gases to expand at their normal rate. You typically get jerky power delivery, a loud fuel knock from the engine, and very high forces on the con rods and bearings. To make matters worse, the engine is turning slowly and has a harder time maintaining an effective oil wedge in the bearings to carry the load.
Sean