Reading bands or reading levels

as they are known here still puzzle me. The idea that you cannot put a word into something "because it is not on the list" seems strange to me.
Let me explain.
When I was a very small kitten, around two years of age, I wanted to learn to read. The very best part of each day for me was sitting on the Senior Cat's bony knees and being read to. We would choose my "bedtime" story and then he would hold his left arm around me. The book would be in his left hand. With his right hand he would point to each word as he read it.
I couldn't read then but I did associate words with marks on the page. I could recognise my name.
By the time I was three there were words all over the house. My mother would, in best "infant school print" label objects. There was a list of "little words" - words like "the", "for", "and", "is", "on", "up", "yes" and "no" on the kitchen cupboard. The Senior Cat would put them together in sentences for me. I would get very cross indeed if we couldn't do some "reading" every day.
I knew the word "elephant" because there was an elephant in one of the Little Golden books. I knew the "ph" was the same as it was in "photo". I could also read "plough" and "scythe" because we lived in an area where those things were used.  
At the age of four I went to school. Back then you could start school in the year you turned five. My birthday was at the end of the year but why wait? My mother was only too glad to have me out of the house. She had two more to care for at that time. 
Of course at school we had a "reader". I had already read that and the next "reader" and quite a few more as well. The Senior Cat had been bringing them home, along with books from the tiny school library shelves. He never suggested I couldn't read something. I was left to find that out for myself.
We went through much the same process with my brother and my nephews here and then I did it with Ms W when she wanted to learn to read. My brother reads a lot, one of my nephews does too. Ms W kicked up a real fuss when they tried to prevent her from reading what she wanted to read at school. I had to go along and say, "Yes, she can read and understand that. Listen to her."
So all this reading bands or reading levels business puzzles me a bit. It seems fine as guidance with respect to what we might expect a child to do but it shouldn't stop words being used. After all there is a child who lives in the next street who informed me the other day,
   "I am going to be a paleo-biologist and look after the dinosaurs' bones."
He turned four last week. He knows more about dinosaurs than I do.  He can read a great many things.