Reading level is established based on usually either the FROG or Slosson Scale. I think most have abandoned FROG for Slosson.
The old FROG was simpler. It was basically take a paragraph, then count the number of words in the paragraph, then count the number of syllables in the paragraph and there is a relationship between number of words/syllables.
When the number of syllables is close to the number of words, it indicates very low reading comprehension since the vast majority of words in the paragraph would be one syllable.
In the inverse, when the number of syllables out-number the number of words, then you can assume William F. Buckley wrote the paragraph.
Words with more syllables include assimilation; conscientiousness; creativity; humiliation; similarity; incredulity; perpendicular as those are 5-syllable words.
8-syllable words would be like "interdifferentiated" and then of course there's antidisestablishmentarianism.
Typically you ask a few questions about the paragraph to assess whether someone understood it or not and that's in part how you establish the scare.
I think Slosson goes to Level 19 which is post-graduate studies.
Read more:
http://www.city-data.com/forum/education/1091994-embarrassing-question-how-reading-level-established.html#ixzz3OUKPh3Ey