Are there grammar classes between Chomsky level 1 and 2?
I know I'm pretty late, but oh well.

There's a class of grammars known as indexed grammars (describing indexed languages, which are a proper subset of CS languages and a superset of CF languages). The rules look very much like the ones in a CF grammar, but every LHS nonterminal has an associated stack of index symbols, and when rewriting that nonterminal, the stack can be manipulated by other nonterminals in the RHS. For example:

$A[\sigma] \rightarrow B[\sigma x] C[\sigma y]$

which means "rewrite nonterminal A to nonterminals B and C, copy the stack and push x to B's stack and y to C's stack" or

$A[\sigma x] \rightarrow B[\sigma]$

meaning "if there's an A with x on top of its stack, rewrite it to B and pop that x off the B's stack".

Some examples of indexed languages are $\left\{ a^n b^n c^n d^n | n \geq 1 \right\}$ or $\left\{ www | w \in \left\{ a, b \right\}^+ \right\}$.

As for the automaton, indexed languages are exactly the class of formal languages recognizable by a nondeterministic nested-stack automaton, which is basically a NPDA in which some elements of the stack may be other stacks.

Concerning practical use, wikipedia says that indexed grammars sometimes find use as affordably processable descriptors of natural languages.

Edit: As Raphael mentioned, indexed languages | grammars are closely related to mildly context-sensitive languages.

There's a class of grammars similar to indexed grammars called linear indexed grammars. While in an IG, every nonterminal in the RHS recieves a copy of the LHS's stack, LIGs require that at most one nonterminal in the RHS recieves the stack. Given that any LIG can be transformed into an equivalent IG, they're strictly less powerful and it has been shown that the set of languages they generate is equivalent to the set of mildly context-sensitive languages.