What are the Differences Between Levels and Islands?

Levels
Originally levels were created to support businesses with multiple floors, for example, hospitals or apartment complexes. This would allow photographers to avoid having to shoot connecting panoramas (hallways, staircases, etc.) and instead "jump" to the next level.

Islands
Island mode (which is sometimes referred to as Hotel mode) was created to accomplish a similar task except without the need to have multiple floors for a building. This was designed for businesses that were very large (i.e. hotels) where the client wanted to show 2 or more specific areas on one floor without having a full walk-through. Islands are best described as "groups" where photographers can group specific scenes in one category (i.e. main entrance, cafeteria, conference room). Islands also work for multi-floor buildings.