Do book levels matter? Or rather, does 'being on the wrong level' matter. Lots of replies have been of the 'probably she's not on the wrong level anyway, trust the teacher to know what they're doing' type. But let's just assume that she (or any child) IS actually on the wrong level. (Which, in my experience, does indeed happen; there are various reasons why a school/teacher won't change a child's reading level and they don't all have anything at all to do with the child's reading ability (incl comprehension)).
So does it matter? In what way could it matter? I guess it could matter in that a) the child learns to associate 'reading' with 'boring, a chore, unenjoyable' or even (if books too hard/not-yet-decodable) 'hard, only for the bright children, not for me'. I suppose as a parent you'd be best placed to judge if it matters in this way. If you're finding that it is indeed negatively affecting your child in this way, then often simply providing your own reading material at home, and spending less time with the wrong-level school books, will help to solve the problem. It would matter more for a child lacking that kind of support from home.
Or it could matter in that b) an opportunity is lost to learn/to stretch the child. Again this can often be addressed by providing your own books and spending less time on the school books. Especially if a child reads a lot, then not every reading time must be stretching/challenging, it's great to have 'easy' reads in the mix too.
The only reason for being on the wrong level that would really concern me, would be if c) it was an expression of the teacher not caring about, and/or not being aware of my child's ability. E.g. my DS' teacher in Y1 heard him read once (and a TA once); in Y2 he was heard reading once overall. They knew he could read well, from everyday classroom interactions; but not really just HOW well. I think that once the teacher (at our school) feels the child has reached the level they 'ought' to (end of year expectations), they don't worry about further stretching them or helping them develop further anymore; especially if they feel the child is being well supported at home. That may cause the child's ability to be underestimated, and thus the child is often set 'boring' work at school, which is much worse than having to quickly get through a boring easy book at home before moving on to something interesting. It might also cause the teacher assessment of the child to be wrong, which generally shouldn't matter very much but sadly can matter if it then means that the child is not pushed enough/pushed too hard in later years, for statistics reasons.
So yeah in our case I feel that being on the wrong reading book level matters insofar as it is an expression of the teacher IN GENERAL not setting appropriate-level work and challenge for DS. The books themselves are not such an issue, we can address that at home; but it IS a problem that before turning 7 DS has learned that school is mostly boring and easy, and that he doesn't have to stop and think about anything.
Again, only you can know if your child being on the wrong book level is just that, and something that can be addressed at home; or if it is an indication of more systematic problems at school. I.e. do they systematically underestimate your DD's academic abilities because of her social difficulties? Do you feel it affects her experience of school? Her confidence? Her attitude towards school? Is she being appropriately challenged/supported in other areas of her learning?