As you win games or complete challenges you will be awarded with xp, which contributes to your next level up. You can track your level as well as how close you are to leveling up via the compass (hover over your player head) or via the experience bar at the bottom of your screen. So far, leveling up only unlocks you new hats and vanity items, but this might change in future. I'm currently grinding for the gamecube hat :)
Level 100 is the highest level, and by reaching it you're awarded a troll hat ._.

