It depends on who casts the Circle spell. Let's say 1 player is at 120, 3 are at 110 and 1 player is at 90. If the 120 skill player casts the spell, he will receive a Lvl 5. If one of the 110s cast, the 110s will receive a Lvl 6, and if the 90 casts, he will receive a Lvl 5. (I'm pretty sure that's how it works cause I've never really had a chance to test that).
The difference between each level is the life span of the arcance gem as well as effects on each spell. Spells will have longer duration and greater effects. The most noticeable difference is with the Word of Death spell.
Here is a quote regarding the Word of Death spell taken directly from the Stratics site I linked in my above post.
"Example: Spellweaver with 110 skill, No Arcane Focus: ~25-40, with Level 6 Focus: ~47-74 damage
If target is within the health% near death, Spellweaver with 110 skill, No Arcane Focus: you’re going to be hard-pressed to find an opponent with 5% or less hp, don’t bother, with Level 6 Focus: 300 points of direct damage."