In MM3, what exactly do levels do? Do they just raise my attacks per turn and my hp, sp and allow me to use higher level spells? Do they they affect stats in any way? Thanks!

I'm not sure about MM3 in particular but in the other MM games that I've played levels do not raise your stats but do raise hp, sp, attacks per turn (at certain levels) and let you use better spells. They also may increase your chances to hit / damage enemies and to prevent enemies from resisting your spells (those things are definitely true in MM1 and 2, but I'm not sure about 3). Gaining levels will also probably make your thievery-skilled character better able to disarm traps and pick locks.

There are other ways to raise your stats which you will find as you play.

That's really helpful to know. Is there any place where all this magical information is located? I've looked at some faqs and the RPG classic site, but they don't explain everything. I can't comprehend how people figured out how to play this game properly without any instructions and no internet back in the day!

The game has been fun so far, I just have been confused most of the time!
As an added question: Is there any easier way to navigate then stopping, pressing the map button and then trying to remember where things were on the map? By easier, I mean in game, not creating my own hand made map.

That was part of the charm. Beating game properly could take weeks / months. From M&M 4 onwards, yes. But in M&M3 Wizard's Eye spell and your own map is the only way.

Thanks, good to know it gets better on that front :p

The game is incredibly challenging. Dying is a very common occurrence! It reminds me of all the other hard games of my childhood!

There is no level scaling in M&M games. If you die a lot in one place, try returning at higher level.

Increasing attacks per turn does help for the fighters in your party. Increasing levels of recruitable characters increases the cost of keeping them. Increasing in thievery ability has already been mentioned. IF you have the spell-boosting skills(Prestidigitation and Prayer Master) it also adds to spell points gained per level.

Well, short of creating your own map you could just take some notes with the coordinates or important locations. Just jot down that a certain town is in outdoor area B-3 at coordinates (2,14) or something like that.

There's a world map included in the extras from GOG that can help you navigate the overworld. Also, there's a cluebook to use if you ever get really stuck. Of course it's full of spoilers, so be careful. One spoiler that I didn't mind was the item stats as I got tired of identifying items all the time. Search the PDF for a specific item to minimize spoilers.