The Core Books often refer to the party’s level. I can not find how to determine that. Is the party’s level total level of all the PCs or average level of all the PCs or something else.
It's basically the average level of the characters in the party.
Typically, 4E parties are all of the same level, but it's not required. A "standard" 4E party consists of 5 characters, all of the same level. A "standard 5th level party" is thus 5 characters, each of 5th level. Parties that are not all the same level can have an "equivalent level" or number of characters assessed for them. As a guide, pick a level for the party that is roughly in the middle of the characters' levels (err on the low side) and then work out how many "character equivalents" are in the party.
To assess "character equivalents", the following guidelines might help:
- A character 4 levels higher than another is "worth" roughly twice as much. A party of three L8 characters and a L12 characters is thus roughly equivalent to a party of 5 Level 8 characters.
This tends to create issues, though, since the L12 character is likely to have an AC and defences ~3-4 higher than the level 8s, and will probably have an attack bonus ~3-4 higher, as well. You can minimise these issues if they are willing to share magic items unevenly (so the L8s get better items than the L12, minimising the difference), but it may still be an issue. It means that, generally, level 8 creatures will not be much challenge for the L12 character, but level 12 creatures will be rather deadly for the L8 characters.
- Along the same logic as the "4 levels higher = two of the lower", a character 2 levels higher is worth a bit less than 1.5 lower level characters, but will have defences and attack bonuses ~1-2 higher (so, as well as having more HPs, they will get hit less and hit with their attacks more often). The aforementioned party of 3 L8 and 1 L12 character could thus be viewed as equivalent to 3 1/2 Level 10 characters. This is likely to work out better, since L10 monsters will be moderately challenging for the L8 characters, while still not being a complete walkover for the L12 if they gang up on her.
Bear in mind that the DMG recommends monsters only in the range ~3 levels below to ~4 levels above the PCs; this should be applied for all the PCs in the party, which will limit the level range you can comfortably use for a party with split levels. Having said all that, though, it's not a huge train crash - it just means that the fight won't be as fun as it might be (due to issues like whiffing, boring "bashing away with no challenge" and hardly ever getting hit/high risk of PC death).
For big parties with many characters you don't want to increase the monster (or skill challenge) levels - increase the number of monsters/XP budget/number of successes needed instead. A "standard encounter" for a party is always the sum of the XP earned for a standard monster of the same level as each character - one per character. Hard encounters range up to double that budget, easy ones down to ~2/3 of it. Skill challenges are worth half the number of successes it takes to finish them, minus 1 (so 6 successes --> 3 - 1 = 2 monsters of the level for which you pick the DCs). It's actually an extremely flexible and easy system to use.