Inverters don't really put out nice, beautiful sine waves like you get out of an AC wall socket. Instead they chop DC current to APPROXIMATE the total current flow that a sine wave would carry at any instant in time.
See image:
http://motors.automationdirect.com/imagessimulated_sinewave.jpg
A "regular" inverter is like one you plug into a car's cigar lighter plug to run a small TV, or even the inverter in the Prius.
The Prius inverter "chops" 500V DC to run the motors, providing "fake" AC.
The chopper is either on or off. 500V or zero V.
What a multi-level inverter does is have several voltage levels, 0, 250, or 500. So it can better approximate a sine wave than strictly an on/off, single level inverter.
The more levels an inverter has, the more efficient it can be, less EMI/RFI generation, and so on. But it's also a LOT harder to build, more expensive, harder to control in software.
Look for multi-level inverters to appear in electric vehicles in the next 5 years.