Also, I just did my review of Ch 1, and I found that on pg 48 they give examples of inputs.  I think this really illustrates arsenal's point. 

For instance, the trading securities are valued at $115...$105 comes from level 1, and $10 comes from level 2.  As arsenal stated above, it would be misleading to call it level 1, because a part of it comes from level 2.  Therefore you use the lowest level (as in lowest in the heirarchy, not lowest in number).  I'm not sure if that jibberish helped anyone else, but it helped me :)

Guys! This is a fantastic explanation. Now, It’s very clear to me.  Arsenal, you are our savor! Jdot514, thank you for pointing out this example. I feel I grasp the concept more.

Thank you again