First, it is a very good thing that the coach is communicating a piece of his/her perception of your daughter to you now, rather than let it go without saying anything. Even if you feel the coach is 'wrong' about your daughter's focus and coachability, you are now clued into one piece of how your daughter is being perceived, and you can monitor the situation.
While it is unlikely she will be 'kicked off' a Level 3 team, if she is perceived as not focusing or not as coachable (and that impression can stick), coaches could start to take a little less interest in her, or have a little less faith in her long term progress. They might not do that overtly or consciously, but it can creep into the way coaches work with athletes.
Since you have been gifted this information, it would be good to ask Coach if it would be ok to check in with him/her to see if her focus is improving, or worsening, in time. Perhaps set up a time window - such as a month, to check back in. Politely ask if there is any advice they can offer to you as a parent for things to say to reinforce good practice habits, and any strategies the coaches intend to use for helping her improve her focus in class.
Hopefully, they will be agreeable to check-ins, continue to believe in your daughter, and her focus does improve to their satisfaction in time (as many do with some more maturity). If she does continue to struggle (in their eyes), it is most likely she would be asked to repeat Level 3, or move to Xcel (assuming you have Xcel). If you are in an uber-serious elite-focused gym, I suppose 'not making team' subsequent seasons could be possible (equivalent of being kicked out), but most seem to have Xcel or similar options to route girls into who aren't keeping up with the prescribed program expectations the gym has in place for JO athletes.
At age 7, though, focus issues are pretty common, so give her a couple more years to really assess if she is capable of the commitment and focus necessary to progress in JO. By 9, I'd say most kids are either there (focus-wise) and stay for a bit, or they have figured out it's mentally not for them.