Can any one give me an example of how to apply a simeple .FX file to Level geometry. I can do it to entities but I can not seem to get a shader to work on the walls and floors.

I can give you an example of moving your mouse up and clicking the search button at the top of the page....

you can assign a shader to a texture by defining a material like this:
//the name of the texture in the level is block_a.tga
material block_a
{
effect = "yourshader.fx";
}

easy, it is in the manual

what is really a shader is it like making shadows or like on the wall the darkness?? or something.

a shader takes every vertex/pixel on a model and runs a little piece of code for it.

The code can do just about anything to it. Mainly changing the color. Look it up on wikipedia or somethin.

well sorta, vertex you can move the position and for the pixel, you can move it stretch it, choose the color, mix the color, all sorts of things.