It's usually one level deep, going more than one you get into the more nitty gritty and Google might not even make that distinction, or even crawl the third level.

Stick to one and you'll do great. Focus on on-page. Use tools like Website Auditor (from Link Assistant) or whatever similar tools to analyze and fiddle your on-page.

A good comparison comes from playing music. Think about pages as chords, and a silo should have pages sounding with a similar "tone", so they all must sound together great like in a single composite sound. A page with different content will "sound" dissonant in that particular context and will ruin the resonance. A silo is one directory (chord) resonating to a particular topic. That resonance makes is rank better in SERPS for that particular topic and Google makes better sense of the whole thing.