The Power Level of your equipment and overall average is used to determine the damage you do in relation to the challenge of enemies, the damage enemies do to you in relation to that, and also with the drops you receive. If your average power level is low compared to that of who you are fighting, they will do more damage to you. Doing damage to the enemy is a bit of a finicky calculation, since it relies on your average and on the power level of the weapon you're using. If your average is below the enemy, you'll do less damage, even if your weapon is at or above that of the enemy. If your average is at or above the enemy, you'll do normal or more damage, depending on the difference between your average and the target, and normal or more damage depending on the difference between your weapon's power level and the target. So, yes, Power Level has an effect other than just being a number. Some activities limit your maximum calculated power level (such as challenges and missions), and some activities equalize everyone's power level (such as standard Crucible). In instances such as that, your Power Level, for all intents and purposes, will be different from what you see in the main numbers, especially when activities cap your attack damage but don't reduce the resistance for being higher-powered, so it's hard to determine sometimes exactly how much of an effect they have. As quincasborbas mentioned, there's a few rules of thumb that many players use, but generally, higher power is overall better for a multitude of reasons, and it's not just because bigger numbers look better.