What do I use to level it?

You don't. It needs to be removed, or covered -- maybe with 1/4" drywall.

If you wallpaper, you will need to remove it. If you paint it, fill in all the nail holes, etc etc, and clean and sand it well, and put on a coat of sealing bonding primer, and then a couple of coats of your choice of paint.

Investigate wall liner. It's similar to wallpaper; used for smoothing wood paneling before wallpapering or painting.

The PO covered many of the walls with wall liner in our house before selling. It really looks nice, other than the cats liking to scratch through it. An example:

Wallpaper Heavy Duty Wall Liner Lining Paper Covers Paneling and Cracked Walls https://a.co/d/7ZcZh82

Unless you're talking about a basement, I would remove the paneling. Covering up a problem is never the best solution.

I have a small area of shiplap I want to wallpaper over. It's in the basement, removing it is too much trouble. I saw one of the answers about the liner said you should spackle before attaching the liner, in which case, why bother with the liner. Do I need to spackle? Or will the liner cover it? Or can I just use the wallpaper?

I'm okay with the wallpaper not being perfectly smooth. As I said, removing the shiplap is not worth it, the area is small and anything I do is going to be an improvement, even if the result is not something I'd like in the rest of my house.