In a move that has baffled everyone, it's the original 2000's gamebryo engine handling game logic while all 3D visuals have been remade from scratch with UE5 as a graphics wrapper.
They also changed some base combat mechanics to be less floaty, added hit reactions and FX, and added sprinting.
It is a strange Frankenstein's monster that can load mods made for the original Oblivion game and runs pretty shite
AFAIK, the new level up system just hands you a bunch of points you can distribute to your attributes freely. The old leveling system was one of the very few things I would mod away every time I played so I'm happy with the change.