I just clocked my 7th hour in this game, and i have some questions: 
 
1. I'm 7 hours in, ive seen tons of "skill increased!" notifications for many skills on the upper left corner of the screen, yet my character is still level 1. I understand that the character levels up when you do things related to the character's specialty, and my character is a warrior so why hasn't all my killing leveled me up yet ? How do i level up?
2. Where do i get lockpicks? are they only acquired by chance through looting? 
3. Can i put out torches like in the Thief games? they expose me a lot while i'm creeping around in underground caves.
4. There's something i don't understand: This game's world is a mixture of a world where there's a kingdom and law and law enforcers, and a world where you roam around, looting and killing freely.  
So how do i know which killing/looting is allowed by the law and which isn't? How do i know that when i kill random people in some underground cave, it wont bite me in the ass later on as a crime ? I guess what i'm asking here is, what are the borderlines of law-breaking in Oblivion ?

1. Sleep
2. Buy them from Thieves guild 
3.not sure 
4.Don't kill anyone that doesn't hit you first, you can loot anyone.

1. You have to sleep to increase your level.

2. I'm pretty sure you can buy them from the thieves guild. If your character is good at alteration you could just buy an unlocking spell

3. Turn your brightness up

4. If you are attacked first it's fine to defend yourself, if you're looting something illegally the hand symbol will be red same for breaking into certain places.

1. Once you gain ten levels in any of your major skills (class skills) a small arrow appears near the bottom of the screen. This indicates that the next time you sleep in a bed, you will level up. 
2. Some members of the thieves guild sell lockpicks as well as this one hooded guy who just stays in one place outside the walls of the Imperial City. 
3. You mean torches in the scenery? No, unfortunately you cannot put those out in vanilla Oblivion, but I believe there is at least one mod for that. 
4. It is legal to kill creatures as well as people who attack you on site, such as bandits, vampires, etc. As for looting, you will know if taking an item will be considered stealing because if you put your cursor over it, the loot icon is red instead of the usual brown.

1. Only the skills you marked at the start of the game level you up and in order to level up you have to sleep in a bed.

2. You can buy them from thieves guild merchants.

3.No.

4.If someone sees you murder someone then its a crime while you can only kill people who attack you first or else its murder.

Caves=free to loot, cities and houses, not so much.
When the skills you chose as major reach a point, you have to go to sleep and assign points, the game notifies you of this.
No you can't mess with torches in vanilla.
Lockpicks are loot and can be bought from the thieves guild if you join.
 
The leveling system is convoluted as hell, I recommend looking up a faq or something to understand it fully.

ALWAYS REMEMBER TO JUMP.

@Ahmad_Metallic said:

I just clocked my 7th hour in this game, and i have some questions:  1. I'm 7 hours in, ive seen tons of "skill increased!" notifications for many skills on the upper left corner of the screen, yet my character is still level 1. I understand that the character levels up when you do things related to the character's specialty, and my character is a warrior so why hasn't all my killing leveled me up yet ? How do i level up?2. Where do i get lockpicks? are they only acquired by chance through looting? 3. Can i put out torches like in the Thief games? they expose me a lot while i'm creeping around in underground caves.4. There's something i don't understand: This game's world is a mixture of a world where there's a kingdom and law and law enforcers, and a world where you roam around, looting and killing freely.  So how do i know which killing/looting is allowed by the law and which isn't? How do i know that when i kill random people in some underground cave, it wont bite me in the ass later on as a crime ? I guess what i'm asking here is, what are the borderlines of law-breaking in Oblivion ?

Aquire the Skeleton Key to get rid of Question number 2!

@TobbRobb said:

@Rolyatkcinmai: ALL THE TIME, ACROBATICS IS THE BEST SKILL. No seriously, at 100 you can jump high as FUCK.

Yeah seriously lol. I remember jumping onto roof tops and from building to building quite regularly.

Some good questions here, I'll go through one by one: 
 
1. The leveling system in Oblivion is somewhat complicated, but it breaks down like this; You have 7 major skill that were determined when you chose your class. To level up you must get 10 skill increases in any of your major skills, then sleep in a bed. There should be an icon next to your compass when you are ready to level up.  Sleeping is essential, waiting will not suffice.
 
2. Lockpicks are commonly found in dungeons and on the bodies of NPCs, but they can also be purchased from thieves' guild fences and occasionally other merchants.
 
3. No, you usually can not extinguish torches in the environment. Having a torch or any other luminous item equipped will make you easier to detect.
 
4.  This is a difficult question, but for all intents and purposes the divide between legal and illegal comes down to three questions:
 
i) What colour is your cursor? If your cursor is red when you put it over a door, entering would be trespassing. Similarly if your cursor is red when you put it over an item, taking it would be stealing. If your cursor is the normal colour, these acts are legal.
ii) Are you on a quest? NPCs will often overlook illegal acts if they are part of your current quest.
iii) Can anyone see you? Drop into sneak mode. If the eye is faded, no-one can see you and you can get away with whatever it is you're doing. If the eye is lit up however, you're spotted, and someone will raise the alarm if you do anything illegal.
 
And finally, killing hostile NPCs is almost never illegal, and murdering bandits in a cave will not come back to haunt you in any way.

DO

NOT

GET

VAMPIRISM

1. Once you gain ten levels in any of your major skills (class skills) a small arrow appears near the bottom of the screen. This indicates that the next time you sleep in a bed, you will level up.

 If your character is good at alteration you could just buy an unlocking spell

 If you are attacked first it's fine to defend yourself

4. It is legal to kill creatures as well as people who attack you on sight, such as bandits, vampires, 

4.If someone sees you murder someone then its a crime while you can only kill people who attack you first or else its murder.

2. Some members of the thieves guild sell lockpicks as well as this one hooded guy who just stays in one place outside the walls of the Imperial City.

Lockpicks are loot and can be bought from the thieves guild if you join. 

1. Sleep 
2. Merchants and fences too
3. No 
4. If the cursor is red on an item then it is illegal, and it will be triggered as stealing. It's the same on doors etc. Usually when people attack you first then you may attack back. If you can hold the block button and press the enter/use button some enemies may forgive you. Usually normal civilians won't attack you at first but give you a warning if you do something stupid/illegal.

In terms of buying spells there are magic shops in, I think, all of the major towns and spells can also be bought from certain Mages Guild members who appear in the buildings in each of the major towns.

1. Once you gain ten levels in any of your major skills (class skills) a small arrow appears near the bottom of the screen. This indicates that the next time you sleep in a bed, you will level up.

Ok.. i'm very confused when it comes to those skills and classes and levels etc etc.. too many skill menus in this game, i don't know which ones you're referring to.

 If your character is good at alteration you could just buy an unlocking spell

Woah there's an unlocking spell? *Goes through the mindfucking process of "How do i acquire a spell? Do i need a certain skill or ability to have/be able to use that spell? hey, speaking of spells, the firey ball section in the Tab menu is full of weird magicy items, not all of them are spells, what the hell are those other things? Uh fuck it, i don't want that unlocking spell, it feels too far to reach*

 If you are attacked first it's fine to defend yourself

4. It is legal to kill creatures as well as people who attack you on sight, such as bandits, vampires, 

4.If someone sees you murder someone then its a crime while you can only kill people who attack you first or else its murder.

What about when i'm creeping about in a cave and i see someone standing by a door. I almost know for a fact that they would attack me if they detect me, yet i'm unable to determine whether they're evil or good. I just pull out my bow and sneak shoot them so they don't alarm others to my presence.. is this how you guys play too ? 

2. Some members of the thieves guild sell lockpicks as well as this one hooded guy who just stays in one place outside the walls of the Imperial City.

Lockpicks are loot and can be bought from the thieves guild if you join. 

That's another thing- I heard about the game being especially awesome for having those 3 guilds, but i have no idea where to find them, and how joining them would disrupt my freedom to roam all over the map.. what hooded guy outside the walls of the Imperial City? the imperial city is huge this whole game is huge, it feels impossible to find what you need.      

@Ahmad_Metallic:

Everyone else seems to have answered most of your questions by now, but I just wanted to give you a little more information. You might not want to go on a leveling spree if you are new to the game, because everything in the game, all the enemies in the world, all of the quests in the game, everything gets harder in difficulty as you level up. It scales with you. And it gets really tough.

As for your confusion on skills, at the beginning of the game when you are escaping through the sewers, the game asks you to choose a birth sign and a class, remember? The class you chose has six or seven "primary skills" that define what you specialize in. Those skills are the ones that cause you to level up when you increase them.

One last thing. If you are in a dungeon, I can almost guarantee that the person you see standing around is not going to be friendly. I don't think I've ever run into this situation. I'd also like to throw in that I love Conjuration magic. Makes combat so much easier since you can summon a monster to tank for you while you smack the enemy from behind.

@Ahmad_Metallic: Wow, nobody has mentioned Shady Sam. He's a guy outside the walls of the Imperial City who sells lots of lockpicks. It's where I get all of mine.

@Ahmad_Metallic said: 

1. Once you gain ten levels in any of your major skills (class skills) a small arrow appears near the bottom of the screen. This indicates that the next time you sleep in a bed, you will level up.

Ok.. i'm very confused when it comes to those skills and classes and levels etc etc.. too many skill menus in this game, i don't know which ones you're referring to.

Basically, a class in Oblivion is: 
- A list of seven Major Skills - these are things like Blades, Heavy Armor, Alchemy, Restoration, etc. 
- Two favoured attributes - these are the "standard" RPG stats like Strength, Endurance, Intelligence etc. 
 
You level up by raising any of your major skills a total of 10 times. i.e. if you have 5 raises in Blades, 2 in Restoration, 1 in Alchemy, 2 in Heavy Armor you will be ready for a level up. This is denoted by a small arrow icon on the side of your screen. You need to find a bed (or bedroll, anything that lets you Sleep instead of Wait) and rest, the level-up screen will pop up then.                                                             

The unlocking spell effect is just called "Open". It's based on your Alteration skill, and even if you have a really low Alteration skill you can obtain a basic one very cheap from one of the Mages Guilds (there's one in every major city). I believe you're even given one for free as part of the Bruma Mage Guild quest.
 
There are different sorts of spells you can learn, the menu is sorted into groups: Ranged, Touch, Self. The spell descriptions will tell you which is which. There are also "Powers" which are spells that can only be cast once per (in-game) day, but cost no Magicka to use. These are usually based on your race.

 

Specifically, the guy you're looking for is Shady Sam, just outside the West gate, exiting via the Plaza District of the city and just north of the Chestnut Handy Stables.  If you're really curious about the Thieves Guild talk to beggars specifically, they'll help you out -- and don't worry, it wont really affect your ability to travel around, provided you can steal without accumulating a bounty.                         

@Ahmad_Metallic: The regular guilds can be found in all cities except the imperial one. They have their own Guild houses with their own insignia, guards can give you directions. As for the not so obvious ones, which is the thieves guild and my personal favorite, "The Dark Brotherhood", you have to fill a certain requirement. For the Dark Brotherhood you have to kill an innocent "and then shit goes down" and the thieves guild has a meeting place in the waterfront, beggars can give you more details.

i recommend getting the skeleton key as fast as you can. you need to be level 5 i believe to start the quest.

every time you level up it will say you should sleep. when you do one of your main skills such as acrobatics or swords you get xp.

for the guilds the fighters guild has two bases in chedyhaal and and anvil. the theves guild you have to go to the water front slums and complete the race at midnight. for the best guild in the game(dark brotherhood) you have to kill a civilian and then sleep, you will be woken up by a stranger who will give you a guest.

i recommend getting the skeleton key as fast as you can. you need to be level 5 i believe to start the quest.

every time you level up it will say you should sleep. when you do one of your main skills such as acrobatics or swords you get xp.

for the guilds the fighters guild has two bases in chedyhaal and and anvil. the theves guild you have to go to the water front slums and complete the race at midnight. for the best guild in the game(dark brotherhood) you have to kill a civilian and then sleep, you will be woken up by a stranger who will give you a guest.

@Ahmad_Metallic: Sneaking won't advance your level because it's not one of your primary skills.

Aquire the Skeleton Key to get rid of Question number 2!

I just clocked my 7th hour in this game, and i have some questions:  1. I'm 7 hours in, ive seen tons of "skill increased!" notifications for many skills on the upper left corner of the screen, yet my character is still level 1. I understand that the character levels up when you do things related to the character's specialty, and my character is a warrior so why hasn't all my killing leveled me up yet ? How do i level up?2. Where do i get lockpicks? are they only acquired by chance through looting? 3. Can i put out torches like in the Thief games? they expose me a lot while i'm creeping around in underground caves.4. There's something i don't understand: This game's world is a mixture of a world where there's a kingdom and law and law enforcers, and a world where you roam around, looting and killing freely.  So how do i know which killing/looting is allowed by the law and which isn't? How do i know that when i kill random people in some underground cave, it wont bite me in the ass later on as a crime ? I guess what i'm asking here is, what are the borderlines of law-breaking in Oblivion ?

@project343:  Thanks for the detailed post. It did melt my mind, and since it's 4:30 here i barely understood anything 
 
I shall read it again tomorrow and see what i make out of it. In the mean time, can you tell me how to get my 7 skills to progress efficiently? as a warrior? I've been killing alot and using armor and everything