Go here for detailed information on how alignment is handled.
A 1st Level character is exceptional, but not exceptionally exceptional, compared with the bulk of the population. Initially, there is little to distinguish them from the ruck and swill of the commonality except perhaps a little more resilience, a little more savoir-faire. What they have is potential.
A 10th Level character is getting to be important in the Grand Scheme of Things. People will probably have heard of them and their adventures, in their own part of the world at least. Gods and their ilk are likely to start to take particular notice of them as useful pawns in their endless games, and they may well be sought after by more mundane employers also.
A 20th Level character is a major player in the Great Game. Their fame will have spread far and wide, and tales of their adventures will be heard in the surprising places. To most people, their status is almost that of a demigod, and small children will play games pretending to be them. The Gods will be eager for the services of such mighty heroes — or eager to deny those services to their competitors one way or another. Life for a very high-level character is seldom boring.
Magic is common, though not omnipresent. Almost every village will have its shaman, wise-woman or priest who is capable of casting a few charms and spells. Magic paraphernalia, though expensive, is within the reach of people like wealthy merchants and aristocrats.
Though people may be wary of and respectful to a spell-caster, they will not be fazed by spell-casting per se. Magic is part of the skein of life; though it is miraculous, it is no more miraculous than the existence of the sun and moon and life itself.
The world is teeming with intelligent species. Most remain in their own territories and never leave home, but almost all races have individuals who don't fit in, who are curious and adventurous enough to want to see what lies beyond the horizon.
Though there are many species, the world is large and there is room for them all. Population is clumped haphazardly; some places, like the island and city of Comana, centre of the great Comanate Empire, is densely populated. Other areas, like the barren islands of Urukhtu are sparsely scattered with settlements. Nevertheless, where there is a niche, there will be life, and probably intelligent life of some sort.
Many of the species are able to interbreed, though most of the resulting offspring are infertile mules. It is impossible to tell just by looking at a species whether it can breed with another, but in general, species of similar morphology are likely to be able to produce offspring of some sort.
The world is a porous ball of rock, seamed with cracks and passages and caverns and studded across its ocean-covered surface with islands great and small. Many species live entirely subterranean lives, others seldom (if ever) venture below the surface. Still others, such as Dwarves and Orcs, are equally at home above or below ground.
The Sun and Moon are sentient, divine beings. They are worshipped in almost every surface culture, though compared some others among the gods they are remote from their worshippers and seldom interfere directly in the events of the world.
This world is just one of countless other planes which coexist and overlap each other. Travel between the Planes is rare, but not unheard of.
Governance varies from place to place. The Great City of Comana is a rigorously policed state with an enormous body of legislation covering almost all aspects of life. Urukhtu, by contrast, is an anarchic wilderness where might makes right and the weak live at the whim of the strong. There is an almost infinite variety of shadings between these two extremes.
Every natural thing is alive and sentient, though its sentience may be so alien to that of the characters as to be unintelligible, or even recognizable. Clouds, wind, streams, lakes, seas, hills, rocks, trees... all of them are aware. They generally work on a completely different time scale to that of races like Humans, Elves, Dwarves, Orcs, etc.
Like the character races, the entities of nature can be wounded and even killed. Wood cut into boards is no longer alive or aware. Rock cut into stone for building, or crushed into gravel is no longer aware. A stream which is polluted and poisoned will die.