Perhaps one of the biggest challenges when it comes to children's books is finding the right books. A big part of that is choosing books at the right "level."
The purpose of reading levels is to help parents, teachers, and kids connect with books that will be "just right" for them -- not too easy, and not too hard. Children should be challenged, but not so much that they get discouraged.
Different schools use different systems for leveling books. The most popular reading leveling systems are:

Fountas and Pinnell
AR (Accelerated Reader)

There are mixed reviews on how effective reading levels are, but they're a good place to start. If your school uses reading levels, consider them a base.
Once you've found some books that match your reading comprehension, you can use them for comparison with other books you find.

Keep in mind, though, that you don't need to only read books on your level. If you're a Fountas and Pinnell level S, for example, you can still find enjoyment in books that are a level I or a level M. The level just means you have comprehension up to an S. And if you want to be challenged, by all means reach for a more difficult book to see how well you do.

Articles on Reading Levels: