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The levels and grades tell how far your horse has progressed through training, and will keep increasing until the horse "levels off" or reaches the point where training only adds minute fractions of a point each week. You can continue training and should continue showing at that point, unless the horse starts coming absolutely last in its class continually. You should also keep the horse in your stable, especially if it has a fair number of points, because even if you retire it from showing, those points will continue to add to your showing bonus.

Every week when your horse is trained, a certain number of points is added to its Show Score. The number of points it gains depends on its training ability, which is given you by the PT score, if you have access to it. Many foundations horses, especially Perfect Foundations, will add 3 points to their show scores with every training.

Now, what do the Levels and Grades mean:

When a horse is created or foaled, it is assigned a random base score, usually between 1 and 10. Foals and yearlings do not train, that starts when the horse turns 2. If you create a horse older than yearling, it will start training immediately (if you have an upgrade, this happens automatically, if not, then you do the training). Horses start out somewhere in Level 1, which covers a total of 10 points.

Every level has 4 grades which are the game reflection of shows available in real life. The grades are Local, Regional, National, and World. A horse enters a level at the Local grade, passes through Regional, National, and World at that level, and then moves up into Level 2, where the progression through grades repeats. From Level 2 through Level 5, there is about a 10 point score spread for each Level/Grade.

Sometimes the Levels are indicated by their number, sometimes by their full name. Here is a listing for you.

Level 1--In hand--horse not yet ridden
Level 2--Green under Saddle--horses that have started carrying a rider
Level 3--Green over Fences--horses that have started jumping
Level 4--Training--horses that are continuing to be trained over more complex/higher jumps
Level 5--C Level--courses increase in complexity and height of jumps
Level 6--B Level--courses continue to get more complex and may have higher or broader jumps
Level 7--A Level--even harder courses
Level 8--Grand Prix--Olympics level when you get to 8 World.

You're welcome.