In poker, the expression levelling or to level is derived from the concept of level thinking. It basically refers to a poker player thinking about what other players at the table might be thinking, which forces some players to make bad decisions because they out-level themselves.
The levels of thinking can be categorized as a level one player, who only thinks about their own cards, a level two player, who also considers their opponent’s holdings, a level three player, who also considers their own image and what their opponents think they have, and so on.
For example, the cut off raises and I 3-bet on the button with AA. Now he would be raising from the cut off with a pretty wide range. He might level himself into thinking that you are 3-betting light, because you know that his opening range contains a lot of weak hands. So he decides to 4-bet all-in. He knows that you know that he knows. This is leveling!
In order to beat the game you play, you basically want to play one level ahead of your opponents, it enables you to run ahead of their actions, allowing you to more regularly make optimal decisions, as you are thinking about how you can exploit their playing style. What level your opponents are playing will largely depend on what table stakes you play. The higher levels will have a lot more thinking poker players.