Oh wow, I remember that old thing. Either I was an incredibly gifted writer back in grade school, or it was overrating me by about six or seven grades.
If I recall correctly, it doesn't tell you the grade level you're writing at. It tells you the grade level you'd have to be to read it (subtle distinction). Normally, the lower the grade level the better, within reason (more readability is good). It had to do with average word length and average sentence length.
I just checked my college papers I've done recently with that in that link (thanks Topher). Yup, 12th grade level, every single one. The only papers that went lower than that were some first person creative writing that I've done. I wonder how Word decides which grade the paper's at...
