Does anybody know what "auto level" in the audio setting actually mean? Is it an arbituary level in the middle? Or does the camera actually adjust the level on-the-fly as the taping continues? Or does it set the level when you start taping and stay there?

It's an automatic gain control (AGC) that dynamically adjusts the gain according to the strength of the input signal - without involving the camcorder operator. While generally the (ATC) works quite well, you will notice variation in the noise floor. Also, if you have some loud sounds, the camera will respond by lowering the gain.
For a short period after that, normal or quiet level sounds will be recorded at a level lower than expected. Likewise, if you have some quiet sounds followied by a loud sound, the loud sound will clip momentarily. The camera does the best it can, but it is unable to predict reality.

Thanks.

How doe sthe Auto Level do when recording live bands and the like? Does it set decent levels without clipping, or does it clip? Should I just go for manual control. I would rather try auto levels, because I am going to be shooting multiple cameras with one operator (one on a tripod and one Handheld).

There are several sources of overload, including: the line analog amplifier (controlled by the automatic gain circuit, AGC), the Analog-to-Digital Converter (DAC) and
the microphone itself as a result of sound pressure on the diaphragm. Auto levels will not all prevent clipping, and does nothing for microphone diaphragm overload. Generally, the AGC will get the audio in a good range, but will take a fraction of a second to adapt. I often allows a large transient to clip if it has been preceded by a quiet section.

Cool thanks for the info. I am going to test it out on Friday.