The target average volume for Volume Leveling is -23 LUFS. (1 Loudness Unit, Full Scale = 1 dB)
This matches the R128 specification to the letter, and there is currently no way to change the target level.
-23 LUFS is used as a target as it is a level which means that the vast majority of music (more than 99% of my library) is able to be leveled to the target average volume without either clipping (distortion) or not being able to be fully leveled. (uneven volume on playback)
The target volume is always -23 LUFS, and that is independent of what is playing.
Well mastered tracks with a good dynamic range may already be at or below this level.
There is a strong correlation between highly compressed tracks without much dynamic range (a low Dynamic Range (DR) value) and the most amount of volume reduction. (say -10 LU Volume Level (R128) or lower)
With a target average of -23 LUFS, you should rarely ever have to touch the volume control, as the vast majority of tracks played should be adequately leveled.
With ReplayGain v1, which had a target level of around -16dB if I remember correctly, I was often reaching for the volume control during playback.
With R128 leveling it's rare that I have to touch the volume control.
Adding Adaptive Volume in the Peak Level Normalize mode (without disabling Volume Leveling) will look at the current playlist, level it so that the average volume is -23 LUFS, and then push up the volume as loud as it can be while preventing the loudest track in that playlist clipping.
So you still have the benefits of Volume Leveling for that playlist, but because the playback volume varies based on what's in that playlist, you have to adjust the volume each time you make changes to it.
So for one playlist, it might be -23 LUFS, another might be -16 LUFS, another might be -12 LUFS, so you're constantly changing the volume control, rather than the average volume being at a fixed level of -23 LUFS.
This mode is absolutely susceptible to a single track making quite a difference in the overall volume level for the playlist, as Media Center will not allow the signal to clip.
It does not cause any signal degradation, it simply prevents Volume Leveling from working optimally.
Unless you simply can't turn up the volume high enough on your amplifier when Volume Leveling is enabled, I would recommend using it on its own instead.