Level and Experience-points:
Level
This is how advanced a character is. At the creation of your character, you will be level #0
As you advance in levels, you will become stronger and stronger, increasing not only in physical durability, but in power (whether it be abilities, divine favors, trade-skills, or spells).
Modification-Points will be awarded each time you level. Use Modification Points to buy up skills and powers, molding your character to your own desire and liking.
Experience points
Read up on "Experience to level" in the E Section of the Basic Rules Book.
Every time you level, you will drop the Experience-Points needed to level, and replace them with the current experience-points to level.
If you have earned 500 experience points and only needed 300 to level, you will start out the next level with 200 experience points. Sometimes, if you earn a lot of experience points, you can level more than once.
Next step: Ability-points