There are no levels at all. Your skills have values that increase the more you use that particular skill (or train it in RoM 1) up to 100. Also, your health increases every 10 skill levels, but I don't exactly know how that works.
Mind you, unlike in other games you gain experience from any action, not just enemies killed. So you can keep casting spells on a rock to increase your magic. However, weapon skills do need to damage an enemy.