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Setting Custom Permission Levels in Sharepoint Programmatically

Before going into How part, lets first understand What is a Permission Level (known as Site Groups prior to WSS 3.0) in Sharepoint? Why do we need it?

What is a Permission Level?
It is a group or set of permissions\actions. By action, i mean that what a particular user is allowed to do in an application.
These permissions can then be assigned to a user or a group of users to allow\restrict certain actions based upon his role in the application.

Security. Making application secure, defining roles and responsibilities of it’s users.
Obviously, every application has users [otherwise why would it exist?]. Each user has it’s own set of roles and responsibilities. As per those responsibilities, he can perform tasks or take actions which are laid down for him.

Have you ever seen a Software Developer doing a job of CA, Finance Head? Surely, it is not meant for a poor developer.
This is where Permission Levels are needed. These permission levels segregate permissions, clearly demarcating or creating a boundary for users what they are supposed to do and what they are not.
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