Yes, for the
test you are only required to know level 1 and 2. Level 1 is a prerequisite for level 2 since the latter specs builds on the former. You may opt to completely ignore level 3.
I forgot to mention SAX. Although it is not a W3 spec(yet), SAX2.0 is important for the test. A good starting point will be
http://www.saxproject.org/ . Focus on the concepts, not implementation. You will need to understand the fundamental differences between DOM and SAX.
You should be in a position to figure out when and if SAX will be used given a scenario.
Good luck!