Overleveling vs Underleveling

[Terminal Devastation]

If the game allows you to progress without grinding, isn't it balanced? O-o

Not necessarily. Some things, while not necessarily grind-worthy, can have too much of one stat, like HP, which makes it take forever to kill them. Another example is money. While the enemies may not be hard, money could be an issue. Things are way too expensive, and you aren't given enough money to compensate. There's a lot of things like this that make every game imbalanced in some way; there's never perfect harmony.

Erm. Player playstyle also affects this though. Some players just HAVE to buy out the shop for the next best armor, even when they could sell their old armor, and the game will give the same armor to buy just a few minutes later. Things like that could adjust the feel of the balance. There's no way to balance that perfectly, as the player themselves is unbalancing the game. A "balanced" game just does it job well enough, and tries to balance prep-time (Grinding, equipment buying, exploration) with combat ease. More prep-time, easy boss fights. That's balance in my book, as long as the rates of growth are fair.

As for the difference between overlevel and underlevel... Underlevel isn't always that much longer a fight. Depending on how complex the battle system is, an underleveled fight might just consist of more care in commands and greater knowledge of how the game works with only 2 or three more turns. In several games, elemental affinities become almost a non-factor with a little overleveling, while they could be the difference between winning and losing while underleveled, even though the lengths overleveled fight and the underleveled fights are maybe a turn or two appart, since the underleveled might take the time to buff and debuff more often, or use a status effect or two, while with the overleveled, it might just be a waste of time.

There's a few other cases where underleveling requires more skill rather than just more time especially in action RPGs. Some bosses are balanced to be easy for appropriately leveled characters, so at normal and overleveled states, they're not a big challenge due to things like defense stats and HP being enough to tank a lot of it, or characters having a spell to deal with it at that point. Underleveled? They might have to learn to dodge more, since a lot of attacks are suddenly an actual threat, and you might have to deal with a problem attack more than once, while in an overleveled, or normal leveled, you might end up beating a boss before said problem moves even appear, or only have to deal with it once, and you can just tank a single one.

It's the same concept as a 3 heart run of a Zelda game, or a buster only no hit run of a Megaman game