Desslock of PC Gamer has written a column explaining level scaling in Fallout 3 in more detail.
Gaining power to kick some serious butt is a hallmark of RPGs.
Typically, you're initially relegated to exterminating rats and
similarly mundane vermin, but after questing for a few dozen hours,
you're capable of dragon slaying. One of the great perks of becoming
more powerful is the ability to strut through previously ominous
territory and beat the crap out of enemies that used to terrify you.
But Oblivion scales in difficulty and denies you that sense of
accomplishment. If you return to a crypt after gaining some experience
levels, hoping to stomp the zombies that previously manhandled you, you
discover that those blasted undead have upgraded to deadly Wraiths.
Oblivion's enemies reorganize into groups, and as you advance in level,
enemies are supplanted by more powerful creatures within those groups.
So, the Goblins you once encountered are replaced by Goblin Skirmishers
and finally by Goblin Warlords. There isn't even a reprieve once you've
encountered a group's most powerful creatures, as those enemies
constantly scale up in attributes and equipment to match your level.
Oblivion's scaling makes level advancement less rewarding, makes its
world unrealistic-eventually, bandits demanding pennies end up decked
out in glass armor and magical equipment worth more than lavish
estates. You're actually regarded for not advancing in level-quests
such as the Kvatch Siege are easier you undertake them as a pleb, since
you'll only encounter Stunted Daedra instead of their more formidable
counterparts. A demonic invasion isn't so terrifying when its
bridgehead forces could have been routed by a lone wild bear.
Fortunately, Fallout 3 will not use Oblivion's level-scaling, but
contrary to what you may have read elsewhere, scaling isn't completely
discarded. The first important change is that creatures never scale up
in abilities to match your level, so each Deathclaw in F3 will always
have the same attributes, regardless of your character's level when you
have the misfortune of encountering it. Second, each territory in the
game is now assigned an encounter level that determines the level and
equipment of critters when you discover that area, so a first-level
character that wanders into an area designated as "encounter level 5"
will be badly outmatched by the inhabitants. Loot is also generally
scaled to the area's encounter level, but some item items will be
hand-placed, which is similar to how Morrowind handled loot.
An area's level doesn't remain static, but it gets locked as soon as
you enter it. If you enter a city block designated as a level 5 area,
it will remain a level 5 area and never scale up in difficulty. Areas
you haven't yet encountered do "tether up" in difficulty level, but the
tethering level doesn't linearly scale with your level, so there's
still an advantage to gaining experience levels. The city block that's
initially designated as a level 5 area will tether up and be designated
as a level8 area if you don't wander into it until you're a level 15
character. But since an area's level is locked once you enter it,
you'll still get the satisfaction of returning to a previously
difficult area and annihilating its residents once you have a more
Bethesda's still tweaking these systems, but they should make
exploration more interesting and not diminish the regard for
advancement by making you feel like you can never really get ahead. I'd
still prefer a static world like Gothic's, where encounters are always
consistent regardless of your character level, but this toned-down
scaling system sounds like a huge improvement over Oblivions.