Hi there icequeen.
If you are, as you say, am/am (two amateurs) then there is not very much choice: enter the lowest level you can (pre-bronze) and at your age level. As tangotime said, your teacher should help you establish that. Am/am competition is quite tightly regulated and many of the factors below do not apply, so make sure you follow all the rules (join your amateur organization, dance only permitted steps etc etc.)
Your statement that 'there are so many levels' makes it sound as if you are going to dance with your instructor, in which case you are doing pro/am (which I do by the way). This is when it really does get very confusing and if your instructor is new to this its easy to end up in the wrong heats (we did first time). As you have probably found out, pro/am is expensive and money is always a factor (unless you are impossibly rich - in which case I know a couple you can sponsor :wink: ).
Mainly, you can make three different errors. The first is to enter too high a catagory. Bronze may not sound very high but the levels are are less about how many steps you know (which is all we focus on when we start) but how advanced your technique is. One could argue that bronze is the most difficult competition of all because you are judged almost soley on presentation and technique - for the simple reason that there are so few steps allowed all eyes are on how well you do them. Also, realize that for some competitors the idea is NOT to finish a level and move on but to stay at that level as long as they can so that they can consistently win. You are likely to meet competitors who are at bronze for 10 years or more (say hi, be nice and when ready, move up past them! Don't be perturbed because they are still winning).
Thus, if its your first competition enter the 'newcomer' heat. Here you will find a range of skills but, as far as I can guage, the judges are looking for potential as much as execution. Its also a relatively low stress environment for your first competition. By all means enter one level too - pre-bronze - where you will get some seasoned competitors. Don't make my mistake of entering silver in my first comp (think deep end - Emerald ball) thinking you know the steps.

o was I creamed...).
Then there are all the age groups, male/female, and single/multidance events. Note that pro/am is a major money maker for competitions. I believe that these different divisions/ages/events were introduced so that one instructor could compete with many students - which benefited the students and the competition. However, watch your pocket book! It is possible to get entered into tens even a hundred different events at one competition. If you can afford it you might enjoy this - but there is no way you are going to dance your best at all of these. I like to do one round of single dances (each dance is judged separately). This is as much for warm up as for anything else - because there are so many different catagories the odds are that you will be uncontested and though it is nice to get a first place sticker its rather hollow after the first time. The real event at the syllabus dance competitions is the multidance. For adults there are usually only two or three levels (Bronze, Silver, Gold) at each style with only three age groups and women and men compete against each other (e.g. international standard, A, B and C age divisions). The multidance events typically have three different dances ( waltz tango foxtrot, or waltz foxtrot quickstep, are the most common combinations in standard). They can be a lot of fun and if you compete in your geographical area you will get to know some of the competitors.
One other catagory that you need to know about is 'closed' and 'open'. At high levels (championship) these terms mean the event is closed or open to competitors from outside the region. However, they have a different meanings in syllabus competition. A closed competition means that you can only do strict syllabus figures whereas in open you can (in theory) do anything you like. It turns out that in pro/am there really are no restrictions because if you read the rules the closed figures are limited to something like 'amateur figures plus those in any acredited dance organization'. I have never seen or even heard of a pro/am couple being cautioned or disciplined for a non-syllabus figure in a closed event. I think it a shame really but, to be honest, pro/am is never taken as seriously by competitions as the am/am events are.
I hope that is of some use - I did rather go on a bit.
Good luck in your first comp and let us know how it goes!