A subdomain is a smaller section of a larger domain. It is meant to serve as a different section for different parts of your website. Although it can serve as an independent website, it is usually for parts of a website such as a store. Subdomains are usually used to create a distinction to visitors that they are on the same website, but on a different section.
Subdomains also allow redirection to specific domains, pointing to different IP addresses or pointing to different directories in your file system.
You can learn more about the parts of a domain name here.
Subdomain levels is each period before the primary domain name. There can be up to a maximum of 127 levels but due to limitations in the design of DNS, each level can only be up to 63 characters and in total, 253 characters.