The way each administrative level is used will vary from country to country. Below are some examples; this is not meant to be an exhaustive list.
United States
A typical home address within the United States looks like this:
432 Anywhere St
Exampleville CA 95555
In the United States, the least-specific portion of the address is the state, in this case "CA" (the official US Postal Service shorthand for "California"). Thus address-level1 is the state, or "CA" in this case.
The second-least specific portion of the address is the city or town name, so address-level2 is "Exampleville" in this example address.
United States addresses do not use levels 3 and up.
United Kingdom
Address input forms in the UK should contain one address level and one, two or three address lines, depending on the address. A complete address would look like so:
103 Frogmarch Street
Upper-Wapping
Winchelsea
TN99 8ZZ
The address levels are:
address-level1: The post town — "Winchelsea" in this case.
address-line2: The locality — "Upper-Wapping" in this case.
address-line1: The house/street particulars — "103 Frogmarch Street"
The postcode is separate. Note that you can actually use just the postcode and address-line1 to successfully deliver mail in the UK, so they should be the only mandatory items, but usually people tend to provide more details.
China
China can use as many as three administrative levels: the province, the city, and the district.
The 6 digit postal code is not always needed but when supplied it is placed separately with a label for clarity. For example:
北京市东城区建国门北大街8号华润大厦17层1708单元
邮编:100005
Japan
An address in Japan is typically written in one line, in an order from the least-specific to more-specific portions (in reverse order to the United States). There are two or three administrative levels in an address. Additional line can be used to show building names and room numbers. The postal code is separate. For example:
〒381-0000
長野県長野市某町123
"〒" and following seven digits shows the postal code.
address-level1 is used for prefectures or the Tokyo Metropolis; "長野県" (Nagano Prefecture) is in this case. address-level2 is typically used for cities, counties, towns and villages; "長野市" (Nagano City) in this case. "某町123" is address-line1 which consists of an area name and a lot number.