Oblivion uses four systems to determine how and when certain things happen. These four systems are:
Loot Leveling - this controls when loot appears
Enemy Leveling - this controls when enemies appear
Loot Scaling - this controls the strength of loot once it has appeared
Enemy Scaling - this controls the strength of enemies once they have appeared
There are a few enemies (not many) that gain levels as the player gains levels. There are also a few quest items in the game that are stronger if you finish those quests at a higher level. These are examples of scaling.