Water level is determined by the height setting of the outlet pipe. The external water level does not really matter. Or the depth of the water the skimmer sits in. Just as long as the black outlet pipe is out of the water. If sump level is low you will get a lot of splashes as the water falls down after exiting. That is why they got those donuts sponges, to help limit the splashing down.
My TS1 and TS2, which works on the same concept, is in really deep sumps. The black pipe on the TS1 is sticking out only 1cm. Not using those donut sponges at all.
Internally you want the water level to be high enough so that when running, the water level is just inside the neck of the skimmer cup. Then it will run rather dry. Pushing the level up and you will skim wetter.