The ACD reporting guide and the Supervisor guide has a lot of information regarding Service Levels.
The following is a great explanation from the reporting guide:
The service level threshold is the number of seconds you set as a goal for connecting a call with an agent. When you set up a peripheral, you can specify a default service level threshold for all services associated with that peripheral. When you set up each service, you can choose to either use the default threshold set for the peripheral or specify a threshold for the service itself in the Service Level Threshold field. If you do not specify a service level threshold for an individual service, the default threshold you specified for the peripheral is used. Typically, you should set these values to match the service level thresholds being used by the peripheral itself.