Due to bounded accuracy in 5e, an army or even a large squad composed of mainly level 2-3 characters will do perfectly fine against a smaller number of higher-CR creatures (e.g., Babaus or Vrocks). So imo it's not too unbelievable that Blood-War-Karlach is only level 3. And temporary weakness due to the physical stress of being abducted and having a tadpole implanted into ones brain can then explain a further decrease to level 1 =effectively a couple levels of exhaustion. If Karlach is supposed to be strong enough to take on demons by herself(?), that's different...
Not that I think there will actually be in-game (& believable) reasons why all of the cast is de-powered to levels 1-3, but Karlach at least isn't too offputting to me.
