Reading Level is useful to tell how readable a book is. If you are interested in learning about what "Reading Level" is, you can find a short version and a long version. In the long version, it explained also various numerical/categorical scales that exist so a leveling guide can be found here too.
Aamzon lists its "Reading Level" using age.
Note that however the "Reading Level" is based on word length, vocabulary, number of words in a sentence, complexity of sentences and other "writing" attributes. So it is really indicative of how "readable" a book is, not how suitable the content of the book is.
So with this first level of information (suggested Reading Level on a book), the parents still need assess the content of a book before reading to the child.
Sometimes a book with low suggested Reading Level may touch on content that actually requires more maturity in order to grasp - but again this is subjective so it comes back to the parents' call - by knowing their child most.
Of course, (nearly all the time) picture books are good pick for the young child. They can sometimes be written for slightly higher Reading Level (eg due to vocabulary), but they remain suitable for child of slightly lower age - they have great illustrations. This is especially true if the book is read to the child.