Player Level Edit
Your player level is the indication of how far into the game you have advanced. You increase your level by obtaining experience points from killing enemies. Generally, the more difficult an enemy is to kill, the more experience you will gain from it. By increasing your level, you increase your HP as well as your Charge, Rage, and/or Zen, depending on your Class. You can also access certain areas that are only available to higher level players.
Enemy Level Edit
An Enemy's level will determine if it has the ability to use the item(s) that it possesses. You can see what equipment an enemy has by looking at it's "Item Drops" section of the Infobox. For instance, the Imp is level 1 and possesses a Fireball. Therefore, because the requirement for Fireball is Level 0, the Imp shoots fireballs at you.