CMMI has 5 different levels i.e. from Level 1 to Level 5. I have tried to explain these levels in plain English so that you can understand and appreciate the whole process improvement initiative that we have taken up.

CMMI Level 1:
CMMI Level 1 is lower-most (or Initial) maturity level of an organization when we refer to the staged representation of CMMI. Any organization which does not belong to any other level is considered to belong to Level 1 (or Level 0 as it should be). This level is characterized by following:

1. There is no predictability in schedule, budget, scope or quality.
2. The organization has some 'pockets of excellence' - which basically means that there are only a few people or things that the organization can do well.
3. The success of a project depends on the heroism of a few key players.
4. The organization is people-dependent. Infact, all organizations are people dependent but in the context of CMMI this basically means the risk due attrition is very high. The know-how of a project is lost with the developer who was working on it and there is no organizational learning.
5. There is no formal or very poor planning process.
6. The discipline of management and engineering is weak and inadequate

CMMI Level 2:
Level 2 is the 'Managed Level'. At this level the organization sort of wakes up and instead of blaming its people it starts looking at its current processes as the main cause behind its inefficiencies. The following are the main characteristics of a Level 2 organization:

1. The organization starts making realistic project commitments and key projects elements like cost, schedule and scope is tracked
2. The organization defines a clear policy for project management and begins to plan the projects formally. The discipline to tracking actual project performance and comparing it to the planned performance is also instilled. So, the organization can take some proactive corrective actions if the project get delayed or exceeds it allocated budget.
3. All the projects requirements and work-products are change managed. The changes to scope are always consolidated back into the main requirement document so that a single document containing all customer requirements are always available.
4. Relationships with both internal and external suppliers are formally managed. All stakeholders outside the control of the project team may be treated as a supplier.
5. Quality assurance becomes a formal process. All issues in a project are recorded for future analysis.

Still at Level 2, there specific implementation of a process may differ from project to project. This happens because the employees may interpret same thing in different ways. Thus, projects may be doing there things in their own separate ways. Even at level 2 the although the organization builds project discipline, but there is still no process discipline. Things like coding practices, documentation practices etc may differ across different projects within the same organization.
Thus, the results of each project may vary to a large extent. The feeling of 'This is how we do things here' is non existent. This can also be seen from the fact that at Level 2 there is no process area under 'Process Management' thread.

CMMI Level 3:
CMMI Level 3 or the 'Defined' level is a stage when the processes and its interpretation get institutionalized across the organization. The following are the main characteristics of a Level 3 organization:

1. An Engineering Process Group or EPG (as it more commonly known) is formed. This is headed by someone from the senior management to ensure proper management commitment is there. This group is then responsible to managing the organization processes.
2. Quality Management System or QMS document is generated which contains documentation regarding all processes. All projects must refer to this QMS and contribute back to it. It is very important as it leads to Organizational Learning. Here is how it works: Suppose 'Project A' has made some process improvement or innovations, these are then fed back to the QMS. So when 'Project B' is starting, it automatically shares the best practices of Project A. This ensures that organization keeps on improving and all projects share the common process.
3. Continuous organizational training ensures that QMS is interpreted in the same way by everybody
4. Engineering and Management activities are more aligned with each other.
5. The engineering discipline gets more effective and the capability of the organization to delivery quality products is greatly enhanced.
In reference to CMMI, Level 3 contains the maximum number of process areas that needs to be addressed.

CMMI Level 4:
At Level 4 or 'Quantitatively Managed' level, the organization focuses on managing the projects and processes through the usage of statistical tools. This brings into picture the usage of data that the organization has started to collect at Level 3. Here is an overview of an Level 4 organization:

1. Threshold values are established for each process area. For example, you may want to control the scope of the project more rigorously. So, you may define a threshold value that says that if the requirement is changed by more than 20% then re-planning and re-estimation will be required. All projects then need to ensure that requirements remain within the defined threshold values.
2. All variations from the threshold value is determined and assigned to either special causes or common causes. Common causes can be thought of, as the causes for deviation that exist within the organization, for example improper training, improper risk management etc. Special causes can be though of reasons that exist beyond organizations direct control. This can be things like continuously changing customer requirements, no access to validation area etc
3. The focus of the organization is to narrow down these threshold values i.e. if today the threshold for delivery schedule is 10% then the focus it to narrow it down to 7% or less.
4. The quality of projects that the organization delivers it of high quality.
5. All projects are managed and controlled using quantitative data.

CMMI Level 5:
CMMI Level 5 or the 'Optimizing level' is different from all of its predecessor stages. The word 'Optimizing' itself emphasizes a sense of continuity. In all essence, it is a stage of continuous process improvement. Here is how an organization at Level 5 may look like:

Since the entire organization works using a common process and collects common data, the only way to improve the organization is improve the process itself. Thus, incremental updates are made to the process. The improvement can be made by the usage of a new technique, tool and technology.

1. The organization depends on innovation for continual improvements.
2. The areas of weaknesses are identified and root cause is determined using Causal analysis (like Pareto analysis etc). The root cause of it then addressed. All common and special causes of variations are either eliminated or their impact is minimized.
3. Although all any process can be improved but the organization depends on Cost-Benefit analysis to select the process area which is most painful. The process having the highest priority is addressed first.