The direction the attacking arrows point will determine the direction a player runs, as long as the play is going that way too. For example, if a central midfielder (CMF) positioned on the kick-off spot has an arrow pointing back towards his own goal (either straight back or at an angle), he will run back to help his defence when the opposition attacks. Conversely, if the CMF's attacking arrow is facing forwards, towards the opposition's defence (either straight forwards or at an angle), the CMF will join in with attacks in the direction of the arrow. If the CMF has arrows pointing to the left or/and right, the player will drift out wide when the ball does.
If you don't give the player any arrows, they will usually stay around their zone. You can see what zone they will cover when you edit position and when you select a player when picking your line-up. When you edit position, you notice a box around the player/dot - this is his zone. Their zone is determined by the role/position they're given (i.e. CF, AMF, SMF, CB etc).
As for the defensive level, this simply tells you what mindset the player will be in:
Low - The player will be inclined to neglect any defensive duties and will not drop back (unless given arrows to do so). So, defenders will keep a high line, midfielders won't track back and strikers will stay far up the pitch.
Medium - The player will be neutral and if he has no arrows, he will stay in his zone.
High - The player will help out with the defence a lot, even if they have arrows pointing to attack. For example, lets take a wing forward (WF) who has high defence with an attacking arrow pointing forwards. If the opposition has the ball, the WF will always stay behind the ball, therefore being in a defensive mindset. However, when your team starts to attack in whichever direction the WF's attack arrow is pointing, then the WF will make runs in that direction.
I think that pretty much covers it. I remember there used to be an in-screen guide when doing formations, but I couldn't find it in this edition.