We give grades because we've always given grades and society expects grades. Not to give grades goes against what people view the institution of school to be all about.
Grades are a way to determine success or failure of kids.
This became one of the reasons that standardized testing became so popular. As a general rule, teachers give less breaks to gifted and talented kids. If they don't have the work ethic that is determined to be appropriate their grades won't get bumped up, but the LD kid who works his fanny off does get the better grade. Even report cards that have lots of room for additional comments don't always do the job. I'm not trying to sound negative.