Others, like the Minnesota Profile of Learning, are an attempt to create truly challenging tasks that we can all agree on the level of achievement. Only time will tell if it will yield the desired fruit. Grades are necessary. I used to think that because they are essentially meaningless, they have no power. I was incorrect.
Grades have great power to motivate, reward, demotivate and destroy.
The overly simplistic answer is that good grades motivate and reward, bad grades do the opposite. Sometimes, I find the low grade is more motivating to a large portion of my students. For some, getting their first B in a class is a nightmare, for others a seemingly unattainable dream. To the first group I try to introduce thinking, process and reflection over flashy product when grading, for the second group I stress pressing on, finishing and producing more then ever before. The same grade means different things to different people.