OK, let me clarify a few things then.
Firstly, "graded" in this sense should be thought of as "levels", and not grades like A-C. There are 8 grades, ascending in difficulty and complexity. Grade 8 is a level 3 internationally recognised qualification, equivalent to an A-level, which 16 year old school students work on at school. At any given moment, a student can be said to be working towards a given grade, and it can take between months and years to attain a single grade, depending on the student and their circumstances.
For the syllabus I teach, there are five elements to a grade:
- two pieces of music to be played with accompaniment. These can be chosen from a repertoire list, or they can be self-selected or even self-composed, so long as Trinity approves them before hand.
- an unaccompanied solo piece: as above
- technical studies that contain grade-appropriate techniques, which usually involve various rudiments, rhythmic concepts/time signatures, and coordination
- sight reading: the student is given a small amount of practice time (30 seconds or so) before being asked to play the piece presented to them, which they have not seen or previously worked on.
- improvisation: the student is given a grade-appropriate rhythm, and is asked to improvise a short (length is grade-dependent) drum solo based on that rhythm.
This last one, improvisation, can be replaced by other "auxiliary" assessments, like musical knowledge or theory knowledge.
These five elements - play along, solo, technical study, sight reading, improv/theory knowledge - are the same for all 8 grades. As you progress, the complexity and body of knowledge grows. At grade 8, you would be expected to not only play the pieces with due musical expression, but demonstrate a command of lots of different rudiments, time signatures, etc. The sight reading and improvisation assessments evidence this, as the pool of rhythms you might be given for the improvisation grows. A grade 1 student can expect a rhythm comprising quarter notes and 8th notes in 4/4. A grade 8 student should expect a rhythm in an odd time signature, utilising syncopation, ties, over-the-barline phrases, and even polyrhythms, and would be expected to demonstrate grade-appropriate rudimental and technical application in their solo.
As you can see, this format presents a lot of opportunity for a well-rounded musical education in the early stages. As I said, grade 8 is a level 3 (within the UK qualification scheme), which is what most 16 year olds would expect to achieve at school. So rather than grade 8 representing a professional level, or the "end" of music lessons, it actually represents the end of the beginning. You have (in theory) covered all of the fundamentals to a high level, and can now embark on the higher concepts of the instrument.
I have grade 8 students who did just tick boxes and pass the exams, and do not play at what you would expect a grade 8 student to play at. These came to me from other teachers, and I now need to fill in the gaps in their knowledge. I also have students with no grades who play at a much higher level. The system is not perfect, nor is it for everyone. It is vulnerable to abuse, and it may be a relic of an outdated system. But, that does not mean it is without value. It is structured, balanced, provides a scheme of qualification and achievement that motivates younger students, and creates an air of achievement and pride for them. When they have a graded exam coming up, they practise and commit themselves, and then that work is rewarded when they achieve the grade.
It doesn't represent the entirety of their lessons. When we are working on one of their pieces, we cover all aspects of that musical context. When working towards the improvisation assessment, we are working towards all sorts of improvisational concepts to ensure they are equipped to tackle whatever they may be given.
It is also worth saying that the US is one of the only countries in the world that does not adopt the graded system. Countries north and south of the US use British-inspired graded systems, many of them actually underwritten by Trinity College itself, as do many countries in Asia and Europe. One of my colleagues is a diploma examiner (which represents post-grade degree-level qualifications), and marks submissions from all over the world, notably excluding the US. I wonder if this is a cultural point within the US, as, as others have stated, there seems to be a culture of hyper-individualism which rallies against any form of...I don't know in this case... standardisation?
Don't get me wrong, the system is by no means perfect, and it is certainly not for everybody. Nor am I a diehard advocate. The moment a student expresses displeasure with the graded work, we abandon it. It is simply something I offer alongside my normal tuition, because my students benefit from it.