Should I tell one of my recommenders that his notes are at a level beyond me?
Instead of saying 


  These notes are far beyond my level, do you have other suggestions?


Consider something like


  What level of detail do you recommend for me when going through these notes? What kind of things should I be looking for and taking note of?


to gain a better understanding of what he intended for you when suggesting that you read these notes.

It's possible that he expected you to understand the notes, and that your inability to do so is a worrying sign. 

It's also possible that he didn't expect you to understand them fully, but suggested them for other reasons: to gain an idea of overall trends in a particular field, to get a sense of what advanced coursework in the field looks like, just to find an idea that inspires you, etc. If you read the notes and skip the details (the derivations, the proofs, etc.) and look up unfamiliar terms as you go, can you understand some of them? Most of them?

It's also possible that these notes are at an advanced level, but that your inability to understand them is not necessarily a worrying sign. Perhaps he expected for you to spend a lot of time studying them in detail (probably using external resources to fill in gaps in your background knowledge) before you can begin to understand them.