I'd like to know, How does the difficuly level thing works in the Creation Kit, and is it possiable to create a new one, based on Master but changes a couple things?

thanks.

I believe the specific difficulties are hardcoded, but you can alter a lot of game settings (Gameplay > Settings) in the CK to possibly tweak the existing difficulties to your liking.

I found something called "sMaster". is this the Master difficulty? and how do I duplicate it and change the code/settings in it?

No that's the string that tells the game what to say when it refers to 'master' difficulty level. For example, in the menu's. If you changed it to 'Dragonborn', then in some places in the menu's where it is supposed to say 'Master' it would say 'Dragonborn' instead.

Like I said, the difficulties are hardcoded, and you cannot duplicate or copy them. However, you can maybe change some game settings for each difficulty. If not, then you're out of luck.