It's actually quite simple. A level editor is literally what the phrase "level editor" means. It's a program that is used to create the "levels", or environments, for your game. When someone is referring to the "level editor" of Gamestudio, they're talking about the WED (World EDitor) part of the package.

Code:
void main()
{
    cout << "I am MrCode,";
    cout << "hear me roar!";
    system("PAUSE");
}