The first required competitive level in JO is level 4.
In some areas, competing Level 1 and Level 2 is unheard of. In other areas, some gyms do compete these levels.
USAG does have a "report card" that can be used to show if they have acquired the skills for each level. They say that having 75% of the skills for a level is acceptable to progress to the next level.
Some gyms do their own thing and just determine where to place girls based on skills.
At our gym, we have 3 levels of rec classes. The girls in our rec level 3 are working on learning JO level 3 skills. If they have 75% of the skills by next week (tryouts will be next week for those that would like to join team), they will be invited to team. Those with less than 75% of the skills and those who don't want to move to team will continue with the rec class. Additional team tryouts will happen in July (at gymnastics camp) and in late August.
Any girls who have 90 - 100% of the skills at tryouts will be in a different group than those with 75 - 89% of the skills. The "lower" group will have a "skills-focused" training plan to get the missing skills. This will last through May. The "higher" group will do "club-focused" training through May. Clubs are what the veteran team members are doing. They work non a single skill on each event to work on. Once they have that skill solidly, they pick another skill.
In June, the new girls will all start learning the routines (while continuing skills acquision).
The July and August tryouts require at least 80% of the skills and demonstration of good memory (to learn routines). This is how it works in our gym.