Fundamental logic for Item Creation

Hi Guys,

Any idea about basic thumb rules for item creation an dfundamental difference between Item Level and transaction Level.

We need to know about basic difference between Level 1, Level 2 and Level 3  Item and transactions level. Pls let me know any business logic, thumb rules to decide how transaction level should be associated with items.

Thanks in advance.

Regards

Chetan Agrawal