A "level" is a map containing background tiles, objects, interactive blocks and event zones. It's possible to create a Scorpion game without levels (such as, say, a rudimentary text adventure), but levels are essential for any Scorpion game that requires controlling a specific character or vehicle.
Since they can be scrolled (and panels can't), they can also be useful for creating cutscenes that use scrolling static images. Levels can only be created and edited with the Tiled map editor for Windows, Mac and Linux.