Ok, so i am new to ultima 7. Where is the best place to level characters up? i have heard that killing paladins in the forest is a sure way to level up combat skills. how long till paladins respawn? are there any other better spots to level up my characters?

Just follow the quests you're given at first, then just roam the countryside, tunnels and dungeons. If it attacks, kill it. Just don't get a Wisp angry with you... Most encounters respawn rather quickly, so plenty of XP is possible but so is the chance of getting seriously hurt or killed. Leveling up is automatic. The accruing training points are another matter.

As for using those training points, you have to find a trainer who will raise your abilities (strength, dexterity, intelligence) and skills (hit points, combat, mana). Increasing strength increased your hit points, dexterity improves combat, intelligence boosts mana. Most trainers will increase one ability or skill, a few two or even three (with bonuses to the appropriate skill), but be ready to pay for their services.

what exactly is my max level? do i need to be careful where i put those trainer points? what do i do if a companion gets killed/ whats the cheapest way to ressurect him?

I don't know what max level is, but if you can't raise a stat any further, you'll be told that and you won't waste your trainer points - you can't 'reallocate' them, but it's usually not too much of a problem anyway. Cheapest way to resurrect a companion is completely free! Simply bring their body to Lord British and ask him to do so.

You'll usually finish the game around level 8. It's possible to go higher, but the amount of grinding necessary to push much further makes it impractical (and it's also likely to be irrelevant if you've completed the Forge of Virtue).

In Serpent Isle, it's more common to finish at level 9 or even 10, but the nature of that game makes a level 9 finish more thematic and you have a number of XP-granting effects throughout to help it happen.

so should i do the forge of virtue? im level 5 with most of my characters.

Always a good idea for the avatar. I usually do it at the very beginning, solo, for all the nice things it provides when you get everything finished. Just remember to "Mark" the island for a quick return should you fall one of the many hazards you'll encounter...

The same applies to the Silver Seed add on in Part 2 (except "Mark" doesn't exist).

best to not worry about grinding early on. You take on the pilgramage to "track down" Elizibath and Abraham.Just make certain you have all members of your party present that you plan on keeping in Stage 2 of the game, after you get leads in the Deep Forest what to do next. The town missions grant XP for free(only do the task). After that, you will get gauntlet attacked continually in The Deep Forest and other places you will level up faster than you think! Their is no "best place" and if you max out too soon then the game seems pointless. And as the max level in Ultima VII part one is 8... Part Two serpent Isle(with silver seed add-on pack in tact is 9-you can gain Int with Elissa). thier is no need to max out early. I was already nearly Level 8 by the time I started doing stage two, Tracking down the Wisps for the "Notebook" and the main quest! If you trek back-and-forth through the Deep Forest and Bloody Planes instead of teleporting, as in, you walk and do not use other modes of transport likely you will be maxed out quite soon! it's more natural that way.