"The creature is also treated as one level lower for the purpose of level-dependent variables (such as spellcasting) for each negative level possessed."
Repro: Create a human level 2 wizard with 10's on all stats. Add a bunch of spells with level dependent variables, such as damager per level, or range per level or duration per level, etc. Add 1 negative level in temp bonuses. All these level dependent variables should go down by how ever many negative levels have been applied. in this case by 1. For example, the protection from evil spell which would normally have a duration of 2 minutes for a 2nd level wizard would have a duration of only 1 minute when there is 1 negative level applied.