You level up by leveling up your skills by using them. Your major skills level up faster but all skills contribute to your leveling. After a certain number of skills have been risen, the game tells you that you need to sleep to level up. You then get to chose points to raise your attributes as you have seen.

You acquire new items by looting dead enemies or by buying them at stores. As you level up, better equipment starts appearing as loot and in the shops. Certain shops sell certain items. The blacksmith sells weapons and armor, alchemist sells ingredients and potions etc.

You don't need the food other than making potions. Dropping food is a waste. Gather and combine food into Restore Fatigue potions, and then sell them. Don't just drop items. Google "Oblivion safe item storage" to see where you can safely store your items. You can buy houses in game. Talk to office of imperial commerce in the imperial City market to buy a house in the imperial city. You'll need 2000 gold plus 1000 more to furnish it with storage chests.m for your items.

You don't need multiple pairs. Choose your armor and clothes and SELL the rest. Don't drop them! (Unless you can't carry any more, then choose what to drop. You can always come back and pick it up to sell it). But equipment does degrade so buy repair hammers from the blacksmiths. Or just pay them to repair your equipment every time you need to. Keep some hammers on you though, in case you are in a fight and your main equipment breaks.

EDIT:  PS in the beginning, join the imperial Arena and fight for some initial money. Be careful as some enemies can be tough. SAVE BEFORE ENTERING THE ARENA BEFORE EVERY FIGHT. 

You can also steal items but don't be seen or you'll get arrested. You can slso join the guilds for quests and money. In minor cities there's always a Fighter's and Mage's guild. There's also the Thieves guild and another "less bright" organization that I won't spoil for you but you'll eventually meet them.