Each system has a law level with 1 being the lowest. Although this is a simplification (and the examples are subjective) law levels roughly correspond to:
Some goods have a 'law level' they are only 'legal' in systems with a lower or equal level
In most systems it is acceptable to carry illegal goods. However You can try selling them but there may be a penalty.
Eventually the player may also have an individual 'law level' (influenced by their actions). They may not be welcome in systems with a higher level.