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I'm not an expert here, but here is a go at it:
Briefly, horses get better at racing in different ways. One is improving the horse's breeding level by training them. This can be done on the horse ranch and co-op village. Both can raise the strength, endurance, and agility stats (along with getting some other effects that can be helpful when training on the co-op village). The breeding level is the average of those three stats. At a certain point, it gets hard to make progress this way on the horse ranch because it takes more and more training to get to the next stat level. Then the horse should get bred with another horse at about the same level also trained so it is difficult to make more progress also. The result is a new horse at the level of the average of the two parent horses. Training for the new horse is now easier on the horse ranch than before. Also, the new horse gains effects like those it can get from training on the co-op village which can help your racing.
Another important number for racing is the competitor level, which is useful when your horse is challenged in races. I think of this as a defensive number. If you are challenging other horses, you prefer this number to be lower. You can to little to improve this number; it gets better when other people challenge your horse, and you have little to no control over making people challenge your horse.
There is so much more to the horses and making your horse get better. Read up on what you can, and have lots of patience. My main horse is now able to race in the platinum league, and I've been playing 3-4 years (okay, there probably are other ways to do this better than I am doing). Good skill!
Once I have a new horse, I go back to training with that one until it gets too hard to train. The recommendation I've seen is that it is like a binary tree, and keep going up the levels. So maybe get two horse to 13, then breed them, then get the new horse to say 26, and build up another horse to 26.
However, maybe you have something, and you just keep breeding at the same level and build effects. Heather Norsk would point out there are lots of ways to play this game, and none are bad.
Also, regarding breeding effects, if I recall, the horse's quality level affects how good the effects are that are offered to you.
Also, when breeding, as I recall, the competitor level is averaged. Most people I observe use the same horse for the three different types of competitions, so all the points earned for the competitor level go to that horse, likely their best horse. When that horse is bred, it's like half the competitor levels that have been built up are lost, and this has a big effect on defending against challenges.