I believe that there is too much emphasis on grades in the American educational system, and most of the teaching peers I know agree with me. It is demoralizing to us to when students are constantly asking "is this going to be graded," want to know "exactly" how we are grading essays, or keep e-mailing to find out what their "grade" is. We would love it, for instance, if a student e-mailed wanting to know more about a book we are reading in class because reading it is exciting! (That is an ideal: often what you read in school doesn't connect to your life until you get older, and that is fine.)
The emphasis on grades means that students turn too much attention to getting a good grade and not enough to actually enjoying and appreciating what they are learning. They feel under pressure to be assigned the right letter (A or B), not to come out of the semester with enlightenment, knowledge, and a new way of looking at the world animating them.
Grades, however, are functional in motivating students to do their work. Because students want good grades, they will often work very hard, and in the process, some will be touched, now or later, by the deeper meaning of what their education intends. They will then be, one hopes, knowledgeable, thoughtful, and insightful human beings who can be the best possible citizens in a democracy.
Grades are dysfunctional to the extent they allow students to go through the motions of doing the required work and turning in the required assignments to get the grade they want but not gaining the knowledge and wisdom that is far more valuable to their futures.