Understand a student's reading level, whether it be where they are supposed to be or where they really are, is a very important thing for a school librarian to know. You need to know so that when you are ready to suggest books it is at a readable level for them and not at frustration level. The above graph is Edward Fry's model for estimating reading levels. It looks pretty straight forward, but you will need the instructions to use it.
Fry, Edward (1977).Elementary Reading Instruction. McGraw-Hill. Retrieved on July 16, 2009 from Kathy Schrock's Guide for Educators: http://school.discoveryeducation.com/schrockguide/fry/fry2.html