I would like to achieve multi level lookup as below
Cluster List structure

Project List structure

Project List Entries

Phase List structure

When I select the cluster, it should show only the projects under the cluster but not all the projects?
I would like to achieve multi level lookup as below
Cluster List structure

Project List structure

Project List Entries

Phase List structure

When I select the cluster, it should show only the projects under the cluster but not all the projects?
Aneenav answer uses a JavaScript library, which is a good one..
An alternative is InfoPath Forms, you can customize the Phase List Forms in InfoPath and apply additional rules with some data sources on the Project selection drop down..
You must have SharePoint Enterprise for that.
References:
If you intend to do filtered lookup, take a look at jQuery plugin called 'spservices' (http://spservices.codeplex.com/). It has got a function for filtering lookup columns. You'd have to customize the new and edit form and make use of above library.