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This is just my opinion, but I cull solely on lifetime points, compared to other horses their same age. So if I have four 10 year olds geldings with lifetime points of 120 118 90 and 84, then I would keep the geldings with the higher points of 120 and 118 and auction the other two. Then I might replace them by trying to buy a horse from the auction that already has lots of points or I might keep a couple extra baby geldings and try them out for a few years and see how they do compared to my other show horses that are their same age.

My idea is to keep a show herd that is an even spread of young and old and to keep the best of each age group. That way as my older horses age out I already have good point earners aging up to take their place as my big money makers.

Making money with show horses is all about their lifetime points. The more lifetime points in your barns, the more income you make on Sunday.

I keep aaaaaall the show ponies. I have finally gotten to the point were I can breed and test and buy all the barns I need, and create what I want and buy what I want. But it took me some time to get there, and keeping all the show ponies is what got me there :)

You asked

Also, is the like a sort of "magic number" pattern for each level that determines if the horse really is better than another?

I'm not sure that there's a pattern in each level for determining which horse is better, but there is a definite pattern to the scores in each level that may help you.

Horses add points to their show score with each training. The average foundation horse will probably add about 3 points to their score each week. So if they start out with a score of 5 (starting scores generally run from 0 up to 10) then their scores would advance weekly like this:
5, 8, 11, 14, 17, 20, 23, 26, 29, 32, and so on.

After you get out of Level 1, where there is only a narrow spread of points in each grade, every level/grade has a 10 point spread. So the example horse above would probably be in 2L at 11 points, level up to 2R at 20, and go up to 2N the week it reaches 32. Most horses level up to the next higher level when their scores reach numbers ending in 0 or 1, so some horses will stay in the lower Level/Grade the week their score is 20, but I've found that most horses will move into the next higher Level/Grade at that point.

As you can see, these horses will slowly work their way up the placings in a Level/Grade for three weeks, placing lower in the class the week when they level up, in the middle of the class in the next week, and in the top of the class the third week.

Horses with higher PT scores add more points to their score with training, sometimes in a pattern like 3-3-4. 4-3-4. etc. These horses will travel up through the levels more quickly so it might be a while until they settle down and have more chance to be in the top part of their classes, but it's worth hanging on to them because if they level off near the middle of a Level/Grade, they will make a good number of points each week for game years and years.

Inconsistency will affect how horses do within this pattern because their scores will vary above or below their base score in a given week.

ETA: Once you get to Level 6, the point spread in a Level/Grade expands, but I don't know that pattern, I'm afraid. Horses stop leveling up if they get to 8 World.