When setting categories, please remember the DPS rules about reserved categories .
Categories can be used for identifying a genre of music, a decade, or both.
How you categorise audio is up to you, though you must not use numeric categories. (using "80" for 80s songs is illegal, but "80s" isnt!"
Levels are an extension of categories. Some people use them to identify popularity, eg Level 1 for Top 10 hits, Level 2 for top 20 hits, Level 3 for lesser hits, Level 4 for album tracks. Other people use them in additon to the year to easily schedule songs by their year (vis "Time Tunnels", etc).
There is practically no limit to the number of levels you can have under a category. They are particularly useful when scheduling commercials - you can use the level to be unique to a particular advertiser, whilst keeping all the adverts in a "COMM" category. Then, you can work with the scheduler to ensure the right adverts get scheduled at the right time, and each client gets the right number of plays, etc.