Understanding what levels to use in gdaladdo

I am trying to understand how tiles overviews and levels interact using GDAL so i know how to use it appropriate and optimize my rasters to use either in QGIS and/or geoserver.

So just to verify my understanding.
TILED=YES (using ex gdal_translate). Tiles the internal file structure of instead of reading it linear.
OVERVIEWS (using gdaladdo). Creates a pyramids. Can be created on individual GeoTiff or on a vrt.
My main issue is to understand levels.

For example

gdaladdo -ro -r 
--config COMPRESS_OVERVIEW JPEG 
--config PHOTOMETRIC_OVERVIEW YCBCR 
--config INTERLEAVE_OVERVIEW PIXEL 
––config GDAL_TIFF_OVR_BLOCKSIZE 256 
--config JPEG_QUALITY_OVERVIEW 75 
mosaic.vrt 2 4 8 16 32 

Say I have a mosaic with aerial images for a large region, say a country.
What levels should I use to be able to render the entire country fast (as a guideline)?
What does 32 mean and how do I know where to stop? 64, 128? and how does it relate to the blocksize to use?

But if I understand correctly using these pyramids in geoserver would not work as it cannot read vrt files. Then I need to tile them with gdal_retile?