The Elder Scrolls IV: Oblivion Guide - The Basics
The levelling system in Oblivion is quite different from that of most RPGs. You do not gain experience points by killing monsters. Instead, character levels are gained by levelling up major skills. Thus, the seven major skills chosen during the character creation process are very important. To gain one level, you must raise any combination of your seven major skills ten times.
There are three different ways to raise skill levels. The simplest way is to use the skill over and over; the lower the skill level, the easier it is to increase. It takes more time to level up a skill with each level gained. Alternatively, you can pay an NPC to train your character in a specific skill. First, you must find a trainer that has a mastery level higher than yours in the skill you wish to increase. There is a limit of five trained levels per character level. You may also come across Skill Books; when read, you will gain one level in the skill tied to that book.
When a level is gained, a message will appear in the top-left corner of the screen instructing you to find a bed to sleep in. You do not need to sleep right away, however; you can stack levels and sleep several times in a row to catch up. Sleep in a bed after gaining a level, and you can then allocate points to three of your character's attributes. Certain attributes may receive a bonus modifier, which is based on the skills increased since the last raised level.
Attributes that receive bonus modifiers are determined by the governing attribute of the skills raised to reach that level. For each two levels gained in a skill, a 1 bonus modifier is added to the governing attribute. Whether the skill is a major skill or minor skill does not matter. For example, if you gain four levels in Armorer (governing attribute of Endurance) and ten levels in a minor skill such as Destruction (governing attribute of Willpower), you would be able to increase your character's Endurance by three points and Willpower by five points when moving on to the next level. The bonus modifier has a limit of 5, so don't bother raising a skill by more than ten levels per character level.