In the attached Blend File, I have a representation of a airplane/jet fighter (cube scaled at one end to indicate direction of flight). I am using torque to steer, and adding Linear Velocity along a local axis for thrust/brakes. What I want to know is how to clamp the velocity along the plane's local axis so when the plane steers, it does not simply keep flying in the direction that is was before it turned. I would prefer a solution with logic bricks, but if that is not possible, python would be acceptable. (it just needs to keep a speed relative to how long the thrust/breaks have been held no mater which direction it is pointing.)
You're on the right track with your setup. What you want to avoid, is the overshoot you get when turning. This can be controlled with the linear ("Translation") and angular ("Rotation") damping:
Once you increase those values, as in this screenshot, you'll get much closer to the behaviour you're looking for. You probably also need to increase the velocities in your logic bricks, to compensate for the loss in speed due to the damping.