There are lots of great examples of level design out there, but the example probably most frequently referred to is the first level of Super Mario Bros. In 5 minutes, this video will explain why.
Extra Creditz is a long-running show covering various issues in the gaming world, and they just started a new show called Design Club, focusing specifically on game design. Naturally, the first episode had to be about level 1-1.
Design Club [YouTube]