Stratum levels describe the distance between a device and the reference clock. For instance an atomic clock based in a physics laboratory or GPS satellite is a stratum 0 device. A stratum 1 device is a time server that receives time from a stratum 0 device so any dedicated NTP server is stratum 1. Devices that receive the time from the time server such as computers and routers are stratum 2 devices.
NTP can support up to 16 stratum levels and although there is a drop-off in accuracy the further away you go stratum levels are designed to allow huge networks to all receive a time from a single NTP server without causing network congestion or a blockage in the bandwidth.
When using a NTP server it is important to not overload the device with time requests so the network should be divided with a select number of machines taking requests from the NTP server (the NTP server manufacturer can recommend the number of requests it can handle). These stratum 2 devices can ten be used as time references for other devices (which become stratum 3 devices) on very large networks these can then be used as time references themselves.