Mount and Blade II: Bannerlord is an RPG at its core with a full leveling system, even if it sometimes appears more like Civilization than Dragon Age. Levels allow you to increase your various skills, but there are two ways in which leveling works in Mount and Blade II.
All activities level your character, but you need to perform explicit actions to level specific skills.
There are over 18 different skills in Mount and Blade II, and you level them by performing actions associated their theme. Fighting with a one-handed weapon will level your one-handed skill, and ransoming prisoners will increase you roguery skill. There is some nuance to the system, however.
To start, each skill can have up to five focus points invested in them (the bars you see under their level), and the more focus points assigned to a skill the faster you will “learn” that skill. In other words, you’ll level that skill faster the more you “focus” on it. This will also extend the range of skills available to learn within that skill tree.
Every character level will grant a focus point, and every three levels will reward an attribute point. Character levels are earned from every activity in the game, so not matter what you focus on the experience earned will grow you as a character. The focus points obviously allow you to boost your skills, but the attribute point you get every three levels allows you to pick one of the six attributes to increase, which boosts all the skills associated with it.
