Is levelling punished in this game? (Remaster)

Genuine question. It's confusing seeing so much random and different information from different places. It's the only thing putting me off buying the game.

I heard it's optimal to complete the game at level 3 or something? That's just scuffed to me.

Also, I love challenge, so I would want to play on the highest difficulty. What's the game like at this difficulty, and is there no point levelling?