Lv4 allows the user to do anything. It allows him/her to write HTML and JavaScript into a sprite. It also allows to set Plug-ins. In general, Lv4 is needed to paste Flash/JavaScript Badges into a sprite.
Lv2 allows the user to edit the page. It neither allows him/her to upload images or files, nor does it allow of writing JavaScripts. The link to the EditMode ([Edit]) is always displayed if the page allots Lv2 to a Public User.
What users can do on the page is limited by the Permission Level (1 to 4). A higher level user has access to the functions accessible to a lower level user. It can be set in Page Property Manager. See Permission Level in Page Propery Manager.
Lv1 allows the user to only browse the page. It does not allow the user to edit it. The new page created in Administration Tools allots Lv1 to a Public User by default. This right can be cancelled at any time later. If the page does not allot Lv1 to a Public User, the page can be read only by the allowed Logged-in Users.