SureAI

I feel like I'm missing something, I have gained a couple levels now, but have absolutely no idea what I actually do to level up? I know the way you do so has changed but I'm not sure how you do it. Is there still the spec trees we see in regular Skyrim? if so they do not show up at the tab menu like they would normally? Otherwise how do I actually level up?

Press the "z" button to enter some sort of "spirit realm" where you can invest in perks.
To level up your skills you need to buy skillbooks (or find them) and then consume them.

How do you know how many points you have to disperse in the training area?
edit: and once you hit "z", how do you exit that area?

Well, I remembered the game had some tutorials about leveling system during the first 30 minutes. Hold H to show up your character attribute screen, equip the power Mediation and cast it (press Z ) to enter the perk area, to exit the area, cast the power Mediation again (press Z).

If the only means for skill leveling is reading /consuming books, .. the moment I can make the game run on my machine my first character will be a thief-merchant non-combat oriented one. After getting into a fairly safe town or city, it will never have anything to do with fighting until it raises its and its skills' level as much as possible by doing non-combat activities to make money which it will use to raise its combat skills through bought, found and stolen skill books. Easy peasy, skill leveling have't been so easy before.

Well.. if it's really the only way (trainers excluded), then it was a rather dumb design idea.

Just an fyi. I got stuck distributing Memory Points after pressing "z" and entering the area. Pressing "z" again did nothing so I had to load an earlier save game. Luckily it worked for me the second time. /Salute

Interesting theory, let me know how that works for you. The problem with your plan is that to read the skill books you need learning or crafting points, and you only receive a few of those points when you level-up (5LP & 3CP), which you do by gaining enough experience points to level up. So how do you plan to gain experience points staying in a city, not fighting and not completing quests?

I'm posting in this thread as I don't feel a new thread is necessary for this question, but what is the level cap?

I don't know what the level cap is, but I've done all the side quests that are activated and the main quest, and reached level 85. I saw one post where a player said he did it all and was at level 101. Believe me, unless you want to spend a few months killing wildlife and bandits, and waiting for them to respawn so you can slowly level up, it isn't an issue.

I don't think there is a level cap. But you should keep in mind that your enemies don't level with you and the end of the mainquest is desingned for a PC around level 35-40. If you do a lot of exploring and sidequests you will reach a much higher level than that, as badgesareus said, so the late game has some balancing issues.