What should the water level be in the sump? Should the water flow over the baffles and go to the next chamber? Or is it okay if the water level is an inch above the baffles? Curious if there's any benefit/ effect to either case.
it depends. each baffle has a specific purpose. my intuition tells me you may have too much water in the sump.
try http://www.melevsreef.com/allmysumps.html for more info.
My priorities when it comes to my sump have always been
Make sure there's room for when power to the return pump is off and the water drains back without overflow
Have the right amount to keep the skimmer working efficiently
After I satisfy those requirements the rest kind of works on its own. I always have a baffle that collects floating debris and uneaten food that I can access easily and swap out often.