Essentially, it seems to me that this is Naruto going Nine Tails type situation. Where a person has this huge power within them and if used, can make them stronger than 99% of the people living in their world. However, they cant use it on their own, at least until much later in the story. Dag can use part of that power through his hammer, along with all of Magni's abilities(at least he will be able to use all of his masters abilities eventually), but even then it is not at the level of Warchief or the Renegade King.
I do agree with you that there needs to be more defined differences between the levels. Dag took down that master and a majority of the enemy opponents using his hammer. Unless that specific master was just really good at using poison and that fire while sucking at real close up battle, Dag should be master strength already. At least while using that hammer he is.
What makes a master a master and what makes a Warchief a Warchief? Why is the king so strong? How strong was Brann in comparison to Magni?