From the wiki:
2 Limited Invisibility 20 seconds 1 You may move invisibly while crouched and perform stealth kill using the attack key. You will be revealed if you touch anyone else or containers, or if you interact with the environment. 5

3 Hidden Killer 22 seconds 1 You may perform stealth kills while invisible. Be careful not to touch your victim beforehand, or you will be revealed. Additionally, any melee attack that breaks Obfuscate 3 will gain a 50% damage bonus.

Based on this info, what is the advantage of hidden kilelr?

Edit: Wait so by "the melee attack that breaks it" they mean the player's attack?

Edit 2:
How exactly does mesmerize work? I can't find good info on it, some say it stuns human enemies in combat, others say it only debuffs enemies. Based on the manual it seems to work on any NPC at any point so which is it?

Obfuscate has two attacks - one tries to kill the opponent outright without breaking stealth, the other does damage and reveals the player.

Presence debuffs all opponents in range and has a change to mesmerize them, i.e. stun them. This even happends already on tier 1 even if the description says otherwise.

This is both for the plus patch, though. Not sure if the base patch is the same.

What I know about the base game is that Stealth was OP in it. Meaning with Stealth 2 and Dexterity 3 you would basically already be invisible.

That's probably a technical problem. My guess is that the devs wanted stealth kill not to break obfuscate only if you have at least level 3, and they programmed stealth kill using the "interact" key like that. But since any melee attack while the stealth kill logo is visible acts as a stealth kill (but without breaking obfuscate no matter the level) there is no real advantage in having obfuscate 3. If you are obfuscated and use any melee attack that is not a stealth kill, you get the damage bonus according to your obfuscate level, but also obfuscate is broken. Breaking obfuscate means you become visible, but if you manage to get to a place where nobody can see you while the timer is still running you become invisible again.
One more important thing about obfuscate: There are some enemies who can see through obfuscate. If that happens they will automatically spot you. You don't even get the regular sneak chance. The debuffs work all the time on everyone while they are within the effect radius. Mesmerize may or may not happen to anyone within the radius. The chance depends on your discipline level and the enemy's resistance.