Hierarchical linear modeling is an approach to analysis of hierarchical (nested) data – i.e. data represented by categories, sub-categories, …, individual units (e.g. school -> classroom -> student).
At the first stage, we choose a linear model (level 1 model) and fit it to individual units in each group separately using conventional regression analysis . At the second stage, we consider estimates of the level 1 model parameters as dependent variables which linearly depend on the level 2 independent variables. The level 2 independent variables characterize groups, not individuals. We find level 2 regression parameters by a method of linear regression analysis.
There may be more than 2 levels in this process, provided there are more than two levels in the hierarchy of groups or categories, e.g. district -> school -> classroom -> student.