The lore concept behind levels (in any RPG) is simply a measure of how skilled your character is. That's why the points earned to gain levels are called Experience. But for gameplay purposes, the extent to which your capabilities change with level is grossly exaggerated. A more realistic depiction of skill levels would have to either use only a very few levels across the entire span of the game, or else make the distinction between one level and the next so negligibly small it isn't even noticeable. Neither of those works well for gameplay in such a progression-oriented genre.

So lore-wise, I'd regard a level 50 character or mob as somewhat stronger or more skilled than a level 10 one, but not nearly to the extent that gameplay makes them. The fact that a level 30 character can easily wipe out swarms of level 20 mobs, but is helpless against a level 40 one is a game mechanic (whereas the lore version would be having just a slight advantage or disadvantage in strength).