Level design isn’t something that can be easily defined in a sentence - it’s a far too varied discipline to confine to one area. Generally however, it is the process of creating a game environment in which the game player interacts with the game universe.
In the early 1980’s, level design would have been the process of placing the obstacles, tiles, powerups and enemies in - for example - Mario or Sonic. In the 1990’s, it progressed with the advent of 3D gaming, where level design involved creating (essentially) ‘mazes’ for the player to explore, and assigning enemies and items to the appropriate positions.
Recently it has evolved into a process far more complicated and has continued to evolve into something requiring more than an understanding of coordinates. Level Design now typically involves creating huge, vast environments where everything from windows, doors, buildings, rolling landscapes and more are recreated in detail. In addition, level design now involves not only placing items and enemies, but scripting their behaviour in response to events in the game world or actions of the user(s). It’s about analysing how players behave in a fictional environment and manipulating them in order to create an experience. It combines skills from architecture, art, programming, scripting, psychology, graphic design…
In ten years from now, 3D Level Design could be recreating everything around you that you see now, and have it all react in the game world as it does in the real world. Already modern games have semi-realistic physics (such as tyres rolling and wobbling as they’re pushed down a hill, blasts scattering debris and litter realistically), graphics (high-dynamic range lighting, depth of field, rippled water reflections, even accounting for depth perception when looking into water) and sound.
A typical level isn’t created by an individual anymore, not created by the same bedroom programmer who did all the coding, sound, art and graphics - that was the last century. This century, Level Design is an exercise in teamwork requiring the input from multiple designers, artists, programmers and engineers to create just a single experience.