I am using Java 7 SDK and IntelliJ IDEA IDE.
java version \"1.7.0_11\"
Java(TM) SE Runtime Environment (build 1.7.0_11-b21)
Java HotSpot(TM) 64-Bit Server VM
As per the documentation within section Exploring the General Project Settings at the IntelliJ Wiki, the project language level impacts the intellisense provided by the IDE.
It also dictates the behavior of the compiler being used by IntelliJ when it compiles your Java code as you develop.
This setting tells all the facilities of the compiler that would be available for the project. For e.g. setting the language level to JDK 5 will allow the IntelliJ to recognize keywords such as enum that are present within the source code.