The player quality one can have is limited by the number of stars. It is capped at 9*
The manager level increases the quality bracket 5 points for each manager level. Your players will drop one star every time you level up even though their quality stays the same.

Your manager level can only go up, never go down. Even if you lose all matchs in the league you stay at your current level.

The number of stars is capped at 9*. You can't assign skill points to a player when a player is capped by your manager level.
The maximum quality you can buy at any given level is 5* from transfer market or 6* from scout list. You may however train your players to 7* and above if you have the resources. It is very expansive (in terms of booster packs and tokens) to train a player above 6* however, and it's even harder to reach 8* and 9*.

In cup or CL there is a disadvantage if you are lower level than your opponent. A player 2 levels higher than you can sign players from market 10 quality higher than you due to the increased quality bracket.

It is however more expansive to maintain a team at a higher level due to increased wage and market values of the players.
So it is important to increase your income so that you can afford a team with higher quality players.

Inversely you may keep your team quality low to limit your expenses, build the facilities and stashing money so that you can build a strong team at a later date.