In mathematics, a level set is the set of points at which a function takes a particular value. This has nothing to do with the way the term is used at Microsoft. In fact, the way the term is used at Microsoft, I have no idea what it means. But here are citations. The first is from an upper-level executive:

Before we start the meeting, let me level-set. Here’s what we plan to accomplish today.

The next is from a presentation to a large group on some investigative work a team undertook. After the presenter spent a few minutes discussing the background of the problem:

That’s some level-setting on the hardware we had available for investigation.

Here are some citations from presentation slide decks:

Agenda

• …
• Pre-work check and Level Set
• …

Initial Data gathering and Level Setting

Teams share solution overviews, roadmaps and architecture views with each other to level set.

(Notice that level-set is as a verb.)

From what I can gather, level-setting is some sort of blend of expectation-setting and calibration.