You are talking about technicalities. Levelling up is nothing but a simplification for game mechanics. The real deal obviously is gaining experience one way or another. Some better games (though I don't know about MMO ones) have partially shifted from the "kill x amount of goblins to level up" to more sensible ways of measuring experience. But in either case it's about putting what you know to use and developing those skills. Levels are just an easy way to measure and control it in games.

I wouldn't even be sure the world of this game follows the rather stupid old way (D&D way). I have a feeling it's more like the Elder Scrolls of using skills enough levels you up, possibly quests helping as well. We have seen some of the kids use non-combat skills extensively and talking about how those skills got up, just like they would in Elder Scrolls. Although we don't know if that levelled the character levels up as well, but it would be strange to have skills and levels totally unrelated to each other. The fact some level 90 people like Marie are utterly useless in combat suggests you could level up without slaying anything, just by repeatedly using whatever random skills you chose.

Fighting type players (and why not NPCs) would still seek out monsters because that's the best way to raise all combat, attack magic, and other such skills, regardless of any exp gained from kills. Saying that when a soldier gets a promotion, it suddenly grants him an array of new skills, health, and whatnot sounds so uber unrealistic that I can't see how it would suit this world. That would also mean the duke would be a huge fighting machine since he's near the top of scale. But obviously he's not. Why, even the princess should be like a real valkyrie, not only a newbie wearing the armor of one.