As well as player, pets can also gain experience and level up. In each level they can get special abilities like Backpack.
There are two different ways the experience is converted into levels, etc at the moment.
Default is the default way the experience part is calculated. When MyPet.LevelSystem.CalculationMode is set to default all pets will level up like normal players would level up like in Minecraft Pre-Snapshot 12w23a.
You can find an example here and a further discription here. If you have any questions related to this topic please send me a message on Discord in the help channel.