In D&D enemies aren't actually given levels. They are assigned a "Challenge Rating," which is supposed to correspond to how difficult of a fight they'll present to a full party of adventurers. Ergo, a CR 5 enemy has to be more powerful than any level 5 character, because a CR 5 enemy is supposed to be able to put up a good fight against 4 level 5 characters.
Video game systems interact with this weirdly, especially in games where you're always supposed to face enemies of the same level as you. This results in things like these Paladins and the red dragon being labeled "level 4" when there's nothing to really support this.
I don't remember this fight exactly, but I assume the Paladins you fight don't have all the abilities of a level 5 Paladin (smite, channel divinity, 1st and 2nd level spells, a fighting style, a possible feat, etc). So these Paladins aren't "fighting like a level 5" just because they have Extra Attack. Enemies of the same level will typically have more HP and attacks but less abilities than a PC of the same level.
tl;dr: Enemy "levels" should not be thought of as the same as PC "levels."
Last edited by mrfuji3; 09/04/21 05:23 PM. Reason: "Enemies of the same level..."