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Every Pokémon has a level. All Pokémon that hatch from an egg are level 1 (Generation 3 onwards) or 5 (Generation 2). When a Pokémon gains enough exp, or is given a rare candy, its level will increase by 1. This is called leveling up. A Pokémon will also grow many levels in a Day Care Center depending on how long it stays, this costs money. When a Pokémon levels up, its base stats will increase, and it will gain some HP. It also may learn a move or evolve upon level up (although some pokemon evolve in a different manner and some can learn moves via TMs or HMs). The maximum level a Pokémon can grow to is level 100 (exception for glitch pokemon in Generation 1 which can be up to level 255 however if they level up after this they level up to level 0).
Additionally, there are Pokémon known as underleveled Pokémon, which are evolved Pokémon that cannot be at that level when owned by the player. They can be found in the wild or by trainers. Examples of underleveled pokemon include Unova Gym Leader Roxie's Venipede which is around one or two levels under, and the Volcarona in Black/White 2 which is around 30 levels under.
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