OK Thanks. I seem to be leveling very slowly. After 11 major advances and about 4 minor advances, my level is still 1, and the progress bar says I'm only 47% until level 2. Hadn't counted on such a drastic change from vanilla. I never really thought about it before but I'm wondering what affect this has on some game mechanics. For instance I made a mod where there are enemies, for example, that are a minimum of Level 10, 2 levels higher than the PC, with a maximum of Level 15. I don't really remember how Oblivion calculates the stats for these creatures, but at this rate when I get to level 10, I'll be way more powerful than a Vanilla level 10 and wondering how that affects the game, especially times when the game is purposely sending you creatures that are equal to your level.
Note that RL may somehow calculate your start level to be below 1, so quite a few of those 15 skill advances may have gone to reach level 1, thus you don't need 15 more to reach level 2. After the next skill-up, check the progress bar again, and hopefully it will have increased by more than 3% or so. But if your playing style is to mainly advance the majors, then RL will make you level up substantially slower than vanilla (and vice versa if you set little-used skills as majors).
As for what it means for difficulty, you're completely right. Slow leveling will means that you're stronger by level 10. I think the default levelMax value is 60 or 65, but personally I have set it to 75 for exactly this reason: I want less skills compared to my level in order to be weaker when I encounter the enemies.
If I wanted to change aaRealisticLeveling.levelMax on an existing character, will RL adjust it OK or should I start a new character?
No need for a new character. It will calculate your level using the current value of levelMax each time. So change it and your level will immediately reflect it. You can even test it ingame by opening the console and type "set aaRealisticLeveling.levelMax to ##", and then "set aaRealisticLeveling.sumStats to 0" to force an immediate re-calculation when you close the console (if not, you'll have to wait until RL determines that a re-calulcation is needed, which is after each savegame load, after most menus have been open and possibly some more). That way you can test out which value you like.