Stu,
In the case of the ADSB reports, the aircraft are described as 'Level', 'Above' or 'Below', simply to direct your visual scan to help locate the inbound aircraft. In this context an aircraft described as level will be at an altitude which brings it within +/- 10 degrees of your own level in the vertical plane, which to the human eye will appear to be at roughly the same level as yourself. Of course, the further away it is from you, the greater the vertical separation which will still report as 'level'. Remember, the whole purpose of the system is to bring to your attention the presence of other aircraft so you can see and avoid them.
Mode S altitude is derived from the other aircraft's transmission and is compared to your current altitude as stored within your PAW. The audio alert is limited to a warning based on the degree of risk presented based on the signal strength of the transmission from the approaching aircraft. The relative altitude is clearly displayed on screen to assist with visual lookout for the inbound contact, either 'level', above or below your present altitude. We have considered adding relative altitude to the mode S audio alert, but this has not yet been incorporated.
Hope this helps
Regards
Peter
Mode S Development Tester