What it does: Scale the enemy's relative strength in an area to the player's level.
Specifically for Skyrim: Enemy levels in dungeons when you first enter it. Smart move, Bethesda. Also, some areas will be designated as "easy" or "hard" according to theme and be scaled relatively to the player level as easier or harder. Also nice.
Why it works: The purpose is not dictate where the player needs to go in order to present the players an appropriate amount of challenge in combat - we know that much and understand that it complements the open world of the Elder Scrolls series so well. The key assumption of level scaling is that the player level is a good indication of player combat prowess in handling enemies.
It is this key assumption that I wish to discuss in this thread, as it leaves a hell lot of ways to "gib" yourself.
You see, in the Elder Scroll series, non-combat skills can contribute to your player levels. In Oblivion, the main culprits were Merchantile, Speech Craft, Athletics, Acrobatics, and security. If you were hoping that speech craft, athletics, and acrobatics were going to help you out in taking out enemies in Oblivion, you'd be sorely mistaken. (Security, and Armorer. Merchantile, security and armorer helps indirectly, but not nearly as much as the combat skills). Yet if you chose any of those skills as the Major skills which contribute to your player levels, you'd be leveling up but not gaining additional combat prowess. Since you levelled up, the enemies however will be stronger henceforth.
Essentially, choosing any of these non-combat skills as Major skills (ie they contribute to your levels) will definately "gib" you.
In Skyrim, ANY skill will contribute to your levels (apparently improving high level skills more so than lower level skills. This is nice IMO). So you can not chooose NOT to pick non-combat skills to represent your toon's rise in combat prowesss. So to be stronger relative to your enemies in Skyrim, you're going to have to try your hardest NOT to level up merchantile, speech craft, security and other skills that don't help you take out your enemies as much as combat skills would. Good luck with that.
See where I'm going with this?
Non-combat skills are great, and should stay in the game. However, non-combat skills do not complement a level scaling system well as non-combat skills are poor indicators of player combat prowess. Hence non-combat skills should not contribute to player levels.
Well, if its too late to change this at this point of the game, I'll just wait for a mod to do it for me.