[hdctambien]

Grades are a score that parents can use to compare their children to other children.

It doesn't take too many parent-teacher conferences to figure out that the parents that ask for parent-teacher conferences want to see "the line go up" and aren't necessarily concerned with their children being challenged or learning much of anything.

The squeekiest of those wheels move from parent-teacher conferences to parent-administrator conferences (and sometimes parent-lawyer-administrator conferences) and you end up with school-wide policies like failure quotas where you are not allowed to have more than 5% of your students fail your class (ie the responsibility of the students grade falls on the teacher, not the student). And that is how grades stop being a measure of a student's understanding of the material.

[OkayPhysicist]

The pathology about grades is caused by colleges giving far too great a weight to high school GPA. If it falls below a 3.5, your chances of getting into the kind of school that people who give a shit about their or their child's education are gunning for drops precipitously.

Meanwhile, universities don't take the time to seriously consider what courses a student took, save for a few APs. That leads to a situation where it may well be in the student's best interest to coast through an easy A rather than get a B or C in a more challenging course. An example I can think of immediately was a friend who got an offer rescinded from a UC because they failed Discrete Mathematics as a senior, despite the fact that taking the class at all was completely optional for him.