I could be totally wrong, but the way I saw it was that Nog needed that command level letter because he was not a Federation citizen. At least I assume Ferengnar is not part of the UFP, like I said, I could be wrong though.
As for Command level officer, I see that as an officer that has been in command of either a vessel or, as in Sisko's case, a space station. I'm sure its restricted a a certain rank as well, so like in the US Army's case, a Captain (O-3) can be a company commander, but Nog would need a letter from at least a Leuitenant Colonel (O-5) Battalion Commander or higher.
So its the position that is more important than the rank, even though rank plays a factor as well.