The class system will involve both levels and tools. Lots of class transitions will require a tool to upgrade a unit to that class: saw for a carpenter, chisel for a mason, bow for an archer, etc. We like this system because crafting is a major part of the game, so it just makes sense that upgrading most units involves crafting too.
That said, levels will be a part of the system too. Some units will gain new abilities when they reach higher levels, and there may be level requirements when upgrading one class to another (like the brewer to the brewmaster)
Like everything else, this is just our thinking at the moment and everything is subject to change. =)