As far as i know it affects only power and grip levels of AI. It can be set per track in Magic Data.
Less power means less torque and therefore slower acceleration (but no necessarily lower topspeeds), less grip means slower cornering (and most likely slower acceleration too).
I doubt racing, mistakes and failues are related to difficulty levels. Failures and mistakes can be adjusted both in magic data and performance files (but just in general per track / team / driver but not per diffculty level), about "racing" you can lower desc. 73 in magic data which results in less cautious CC cars in lap 1.
I don't think there is a difference in "intelligence" between Rookie and Ace levels.
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