Your Level is capped per Floor. First Level is 12 and 2nd Level is 24. It is there, to keep the player in check, so they cannot just grind and become way to strong. Also you don't need to lose at all.
If it was capping overall power it would make sense, but the way it's implemented the primary function seems to be to punish anybody who didn't specialize hard enough, early enough. You could easily crank Strength up to level 60+ and obliterate everything with one kick, but Charm, Mind, and Energy can easily get stuck at level 1 forever because your strength and stamina pushed you into the level cap before you had the option to really train them. And a lot of titles/accessories/edicts that are supposed to improve those hard-to-raise stats never get used at all, because by the time you manage to get them you've stopped earning experience entirely.
Maybe this will change once the lower floors open up, or maybe the exp gain rates for different stats will get rebalanced, but as things stand the level cap mostly means that if you play through the game blind, you lock yourself out of the options you actually want and in order to do anything other than a pure slugger build you need to plan out every move you make before you start playing.
A more elegant solution would be a 'soft cap' instead of a hard limit, where advancing one stat doesn't penalize the others but the exp required to advance within each individual stat goes up exponentially with level. That way making a well-rounded character is fairly easy, and you can switch which style you're focusing on relatively trivially, but advancing any individual stat to super high levels takes a lot of work and any attempt at grinding your way to infinite power runs into sharply diminishing returns.
On a mostly unrelated note, I was messing around with variables in the .js files to try to figure out how to tweak the exp gain rates of the different stats directly, and accidentally created a world in which every inmate ejaculates instantly upon seeing Karryn. I think that it's treating my charm as if it were several times higher than it actually is while in combat? Nowhere near balanced and definitely not the intended gameplay experience, but
hilarious. I just walk into a fight and they all
pop pop pop.