Hi GreatJoan:
With the health-warning that I've become a cynical old thing over the years....
I suspect that the national dropping of NC Levels in England to a free for all with each school entirely free to choose their method of evaluation of pupil work won't help parents...
The reality is we do talk to other parents - when we get together with friends, meet up in the park, etc.... - and if you're spending time with other children you do form an opinion (maybe A plays snakes and ladders more easily than your own DC, much better able to add 1-6 to numbers to 100 than your own/ maybe B has work up on the wall which clearly is beautifully written or includes clever ideas). The point about NC Levels is that they were a means of understanding how your child was progressing in terms of national testing in Year 2 (KS1 SATs) and Year 6 (KS2 SATs).
MN has a lovely explanation of expected progress against NC Levels throughout primary here: www.mumsnet.com/learning/assessment/progress-through-national-curriculum-levels - the tables at the bottom show the notional progress expected for a 'typical' child at the END of a given school year (?MN typical - teachers have posted this isn't the scale they work to).
So your child performing at 1A right now in Year 1 - does indicate he's doing very well indeed.
What I will say with reading schemes (so the colour bands) [and bearing in mind I'm just a Mum] - is that Reading isn't just saying words on a page, but will include ability to discuss aspects of stories and structure of books (authors/ illustrators/ index/ glossary/ aspects of plot/ which character you like or dislike and why/ etc...) - so although I don't completely know - but just guessing - I wonder if it isn't a case of your DC may be technically reading quite well - but he may not yet be performing at NC L2 ability in terms of discussing the stories he's reading.
What the teacher is saying is that they predict he will be.
-----
As a parent - regardless of what evaluation system the school your DC attends adopts post NC Levels (and some are just sticking with it) the point is to understand what the next step for your DC might be. So that right now your DC is able to read out text quite well, but [fill in the blank] (but for example needs to move on to reading with more expression and being able to discuss elements of the story).
I found that this was always handled very vaguely - so it may help to look at this: www.manorcroftschool.co.uk/files/homework/Readinglevellinggrids.pdf
it clearly lays out what reading skills the teacher is looking for to assess your child at a particular level. Each school handles this differently - but our school certainly wanted to observe a skill 3 times and would not count times when the skills was demonstrated during 'group work'/ 'working with a friend'. I also think that with 30 kids and teachers having to document these skills - you can envision that this is in fact a very slow and longwinded process - so maybe your child is seriously observed once a week on this.
HTH