Leveling would be killing mobs(creatures) and gaining expierence till you get enough experience to get to the next level. Example 1000 exp till next level. You kill small bat you get 125 exp. Now 875 exp till next level. The skills system is using the skill over and over learning it better till mastery. Example would be skill bash. You practice it till 75% profiency and as you keep using it it would go up slowly 76% 77%. Another example would be the spell cure light. You practice it till 75% profiency then as you use it the higher the profiency. Hope that sheds some light.
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