To take another stab at the original question...
Player characters have attributes, common skills, weapon skills, traits, and two special ratings called Valour and Wisdom. When rolling against common skills during adventures, certain circumstances allow players to earn advancement points, which are used later to raise common skill ratings. By going on adventures, you earn experience points (mostly at a set rate), which are used later to raise Valour, which gives you special equipment called Rewards, and Wisdom, which gives you special abilities called Virtues. You can also spend experience points to improve certain equipment and abilities, or to improve weapon skills. People often say you can use the total experience points earned by the character as a rough guide of personal power, but that doesn't take common skills into account.
You can't improve attributes and various derived stats directly, though some Virtues do that for you, and some special activities, called undertakings, let you improve them temporarily. You more or less never gain more traits, though you can change them.
NPCs don't have most of the statistics PCs do. Instead, most NPCs just need an Attribute score. This is a number from 1 to 12, and it represents an average of the three attributes of PCs. It also works as a general guide to the power of the NPC, roughly equivalent to D&D's levels.
So there's no single mechanism for improving your character. Many parts can be improved independently of each other, using different pools of points. There is no "balancing" of combat encounters: you have to learn that through practice and common sense—how many orcs could three hobbits REALLY fend off?
P.S.: Attributes range from 1 to 12, though most PCs start and stay in the range 2 to 7. Wisdom and Valour go from 1 to 6, and a beginning character starts with one of them at 2 and the other at 1. Once you reach these maximums, the rating can't be improved further.