SharePoint 2007 - Permissions, Security, and Site Setup
A permission level (permission level: A set of permissions that can be granted to users or SharePoint groups on an entity such as a site, library, list, folder, item, or document.) enables you to assign a particular set of permissions to users and SharePoint groups so that they can perform specific actions on your site. By creating new permission levels (or editing existing permission levels) with the permissions required to perform common tasks, you can associate an appropriate permission level with the users or SharePoint groups for the securable object on which you want to allow them to perform those actions.
The following figure shows a site collection hierarchy with a top-level Web site and subsites that inherit permissions from their parent site as well as a subsite with unique permissions.
Lower-level securable objects automatically inherit permissions from their parent.
For example, a list or library inherits permissions from the site, and list items and documents inherit permissions from the list, library, or folder that contains them. You can break this inheritance at any point in the hierarchy and assign unique permissions. When you break the inheritance from the parent, the securable object from which you broke the inheritance receives a copy of the parent's permissions. You can then edit those permissions to be unique — meaning that any changes you make to the permissions on that securable object do not affect the parent.