The way I'd do it is separate it by area AND playstyle. For example dungeon x has vampires. If you try and stealth it at level 3y you'll get killed. But while they have escellent senses the vampires are pretty weak. So you'll be able to melee them at leevl 2y. This is to spice up the different playstyles and give alternate ways of clearing a duncheon. A social type skill could allow a noncombat player to talk there way through. Or a high level mage might decide to switch playstyles would still have interesting content to do.
Though each area of the game, [be it a dungeon, a city building or open world travel] would have an average level which is the minumum level wich a player can go through. Going too high means you will die. Ging to an area too low means it will be too easy.
In order to balance this. Each area will have loot compatible wit that level. If a level ten player kills a level fourty-nine kngiht than he'll get something valuable. If a level fourty nine player kills a level ten bandit than he'll get a large chunk of iron oxide. [ie almost completely rusted]. This means the game is scaled in a way that only gives better items to higher level players while giving lower level players a chnce to get it. It also gives lower level players a challenge if they want to play content way above their level.
Of course it would have to be balanced correctly. If there are too many low level araes than than high level players would feel left out. and visa versa. Also dungeon and mob distribution would have to be carefully balanced