There is a difference between all levels of Cache.
They are all performance related.
The initial level of storage on a processor are the registers. The registers are where the actually processing input and output takes place.
-L1 cache - Then the level 1 cache comes next. It is logically the closest high speed memory to the CPU core / registers. It usually runs at the full speed (meaning the same as the CPU core clockspeed). L1 often comes in size of 8kB, 16kB, 32kB, 64kB or 128kB. But, it is very high speed even though the amount is relatively small.
-L2 cache - The next level of cache is L2, or level 2. Nowadays L2 is larger than L1 and it often comes in 256kB, 512kB and 1,024MB amounts. L2 often runs at 1/4, 1/2 or full speed in relation to the CPU core clockspeed.
-L3 cache - Level 3 cache is something of a luxury item. Often only high end workstations and servers need L3 cache. Currently for consumers only the Pentium 4 Extreme Edition even features L3 cache. L3 has been both "on-die", meaning part of the CPU or "external" meaning mounted near the CPU on the motherboard. It comes in many sizes and speeds.
The point of cache is to keep the processor pipeline fed with data. CPU cores are typically the fastest part in the computer. As a result cache is used to pre-read or store frequently used instructions and data for quick access. Cache acts as a high speed buffer memory to more quickly provide the CPU with data.
So, the concept of CPU cache leveling is one of performance optimization for the processor.