I know this is stupid but I really don't know. How do you level the ground for a 12X20 shed?

lucky for you its not very big. First you going to need to get some stakes and string and some batter boards. Which are just 1x4s, level or plum line will be needed a shovel, tape measure

are you pouring concrete for the shed? I will assume so.
you need to first square up the where you plan to set the shed, or build the shed.
if you don't know how to square it up, tell me and ill give you simple explanation of how to do this,

pick a location and drive your first stake in the ground and then measure out 12 or 20ft which ever you want to start with, and drive another stake, leave about a 1ft of the stake above the ground so you can mark the level line later,
after you have all 4 stakes drove in the ground start from the low side of the yard and measure up 4" and level across 12" and make a mark, (instead of a mark I will just wrap the string around the stake at the level point for future reference.
to level across you'll need a plum line, unless you have a long straight edge you can lay a level on.
after this use the line level on the 20ft length, you then can measure down to see how much dirt you need to take out to make it level. It doenst have to be perfect as long as the batter boards are level you can just pour to the top of the batter boards and it will be level.

on my building I built I didn't level out the ground as much, and the result was a 13" thick pad in the back of the building.

if your ground isn't sloping bad id just remove the grass from that area and form up a frame to keep your concrete in and pour it.

Start from the low side of the yard and measure up 4" and level across 12" and make a mark... WHAT IS... AND LEVEL ACROSS 12"??