Each grade level has 4 "levels". But each kid is on their own track. And while those books have assigned grades, the teacher assigns a pool of books for each kid based upon their actual reading level. And each week, the kids are supposed to pick 4 books from their pool to take home and read.

My daughter is in 1st grade and every week picks 4 "R/S" books (3rd grade). She has a friend that still picks books in the "D/E" category (late kindergarten/early 1st grade).