Multi-level marketing is a strategy in which the sales force is compensated not only for the sales they make them selves in the form of discounts and points but also for the sales the downline (who the person pulls in). Multi-level marketing is also termed, sometimes, as MLM, referal marketing, network marketing, pyramid selling.
As you can see in the above example, in level 4, there are 8 distributors (sellers) ( 2 raised to the power 4 = 8).
For example, if a person A started the business (say, A is MD). If he joins two more people, sa AA, AB as his next (ie., second) level sales persons, and they themselves recruite two each (AAA, AAB and ABA and ABB) and so on... by the time, the number of levels become 26, there will be over 67 million ( 2 raised to the power 26 = 2^26 = 67 milliion) persons in the organization, and half of them, viz., 33 million persons will be at the level 26.
There always exist half of the bakras, who nevel sell an item and only buy items from the company.
One forth of the total people will have only one downline candidate who never sell. Even these guys are loosers.
Multi-level marketing companies rely on the above facts that majority, ie., more than 90% of the total guys just buy the products but never make money - in fact that 90% of the persons in the marketing tree are the customers to the organization who never make significant money, not even money that they can use to buy their lunch for the month.
I call it loss to this 90% because they are fooled for their life time to use the products of the company with an expectation that they would make money one day.
MLM is not illegal as such, but before you just the market, be ready to become the customer (for the life time or you will lose) and be prepared to buy the products for the rest of your life.
Here are some tips you need to consider before joining the MLM.
Is it inline with your goals and ambitions?
Study the company profile
What are the restrictions? Can you leave any time? What is that you are going to lose if you leave? What if you can't sell to many people. What if you can not join new people.
Talk to your friend and get an advice.
Most importantly take your own time before you commit.
Here is the list of such companies listed in wiki - http://en.wikipedia.org/wiki/List_of_multi-level_marketing_companies