The levels in Answerbag are a point status that is awarded to the users currently in Answerbag. The leaderboard was also made to stand currently the top users in Answerbag. Points are awarded through questions, answers, and moderation on a user's account.

EDIT

No one has done this before in this question for an answer, so I guess that I will do it then.
As you level up, your ratings increase, the higher you level up, the higher your ratings. It seems to go like this...

+1 on answers
Lv. 3 Novice +2
Lv. 13 Wiz +3
Lv. 23 Expert +4
Lv. 32 Professor +5
Lv. 43 Brain +6

+1 on questions
Lv. 5 Contributor +2
Lv. 26 Expert +4
Lv. 40 Brain +5

-1 on answers
Lv. 49 Brain -5

-1 on questions
Lv. 9 Contributor -2
Lv. 47 Brain -5

I can't remember the rest, but I will try to later on. Any help is aprreciated!

---- MODIFIED ANSWER: with some corrections ----------------------

1) The more active and the more appreciated you are on AB (with also some part of luck), the more points you get.
For some bigger amounts of points, you get a new level.
This amounts grows with your level. For any Answerbag user, you can calculate the total amount of points needed for their *next* level. In their profile, section "his / her point", add the current "Points" total and the "pts until level [next level]".
For instance, at the moment, I have 45658 points in total, and I need "2228 pts until lvl 65".
So, to reach level 65, you need in total:
45658 + 2228 = 47886 pts


2) Usually, something particular happens when you reach a new level:
- every 5 levels and later every 10 levels you get a new title
- the amount of points that you can give or take to answers and to questions grows. These are the 4 numbers on the "My ratings" table on your profile. Usually, just one of them will be growing at a time.
After you reach the "Sage" title, those amounts do not change anymore, they stay by:
ans ques
Helpful Rating +6 +5
Not Helpful Rating -5 -5


3) latest change in level organization (end of Spring 2007):
at that time, AB has rised (about doubled) the number of points that you need to get a level. But everybody were allowed to keep their levels.
So if you were 1 point from the next level before the change, you needed to double your points after the change to get the next level.
As a consequence:
- many people after this change were still playing for points, but not much for levels, because they needed a huge amount of points until their next level.
- a long time after this, in the all time most points leaderboard, some people still had higher levels or titles (and could give and take more points) than others with the same number of points.
- people who had not reached the amount of points needed for their level had a black bag.

To recognize our very best contributing members, we award them Levels as they reach certain numbers of Points. It's easy to "Level up" at first, but it gets harder each time, so give as many good answers as you can to level up quickly. When you make it to higher levels, you'll see the following changes:

Your Badge may change
Your Title may change
The number of points that your votes are worth may change

To recognize Answerbag's very best contributing members.

Recognition for those who contribute to the site and earn points to be heard louder on the site.

Now i know what levels are ive been a member for about 1 hour..and ive got a rating of 5 on my question.

Levels are kind of like different rankings that members reach.
There is also more information here:

http://www.answerbag.com/a_view/2261357

I think they prove who is good and who is not

To recognize our very best contributing members, we award them Levels as they reach certain numbers of Points. It's easy to "Level up" at first, but it gets harder each time, so give as many good answers as you can to level up quickly. When you make it to higher levels, you'll see the following changes

levels on answer bag is your level the more answers u give the higher level u get ok