I would say that not all grading systems are equal and I have my fair share of complaints against standardized testing, as well as grade curves, however, I do believe the grades from specific testing material (say end of chapter or concept test) are indicative on if you are able to understand the material. Now when I say test, I do not only mean paper or multiple choice. I think that we need to have people be able to explain their knowledge the best they can, whether it be from physical activity, speech, or traditional test. After that they should get a grade to get feedback on their knowledge.
Grades do not necessarily translate directly to intelligence, but they do generally represent a student's effort and consistency. A student who consistently gets good grades, at the very least, applies themselves to their schoolwork, while a student that consistently gets poor grades either clearly does not understand material or does not put forth an appropriate effort. So grades must have some correlation to intelligence.
There may be exceptions to this rule, but an intelligent student will generally understand the importance of good grades.
Grades are only a good indicator of knowledge if those grades are based on some sort of holistic approach. It is entirely unfair to say that grades on a 4-answer multiple choice assignment directly translates to knowledge. For all one knows, that person could have been a lucky guesser or a good test-taker.
However, if the grade is given based on a short answer or essay type assignment, those grades would be more correlated with one's knowledge on a subject because it requires that person not only to give the "correct" answer but also to explain it thoroughly (which is where the person's knowledge comes into play).
Knowledge and intelligence is not the same thing.
Does good grades imply a person knows a subject well? Not necessarily. But at least this person knows the material on the test/exam.
If a person doesn't have a good grade, then that person is lacking knowledge in the subject. Person may be intelligent but it has nothing to do with knowing the subject.
Grades are not a good indicator of intelligence because some students copy answers from friends, some teachers give easy work and random grades, and some students just refuse to do work. Not always does a lazy student equal an unintelligent student, and not always does a student that turns in work equal an intelligent one.
Grades can be a good indicator of a persons knowledge of a subject if the grade has been earned over a period of time through projects, reports or essays. Examinations are a memory test and are a very poor indicator of a persons knowledge. It is easy to obtain previous years papers, have some clues given to you by a lecturer/teacher or learn enough about a subject to ace certain questions while not learning other fundamental knowledge of a subject. I was personally able to memorise 3 out of 4 questions for a Mathematics exam at University. The questions were almost identical to old exams and I answered the 3 questions I attempted perfectly, without really understanding what the questions were asking. This gave me 75% and an A. This has always been proof for me that grades never indicate a persons knowledge of a subject. There is also the case of people becoming too nervous or stressed during an examination and suddenly forgetting important knowledge, only for it to return when they leave the room. I will always believe that an in depth report or essay that has been worked on over a long period of time will indicate a persons knowledge more than a 2 hour exam on a subject.
Many students, myself included, are great at short term rote memory tests. We throw up our short term memories for each exam then forget most of the material. Many exams in K-16 are rote memory dumps and the pupils and students that excel at these sorts of exams are necessarily the best and brightest just good at memory games.
A few better indicators of knowledge are application, critical thinking, and collaborative projects that improve society.
There are quite a lot of gifted and talented students whose grades are very poor, due to them either not applying themselves or not having the right facilities to support their learning. There are also students who get excellent grades due to the fact that they are being pushed beyond their own ability, and end caving under the pressure.
Grades aren't a sign of learning, rather a sign of obeying. Americans today get quizzes and tests 24/7. Instead of doing projects and understanding concepts, we are simply forced to memorize rather than understand. I have forgotten almost everything I learned in Chemistry because I had to memorize it. Had I been given the chance to do simple chemistry projects and observe the reactions, then I might have been able to learn. Quizzes, tests, homework are NOT signs of learning and they actively detriment learning in every way possible.
Grades do not indicate your knowledge. Some people learn different ways, and just because you may not get good grades in lets say math, does NOT mean that you are not smart. If you judge a fish on its ability to climb a tree, it will live it's whole life thinking it is dumb. Everyone has a different way they learn and a different way that they are smart. Reading textbooks, writing notes and then memorizing it all to write a test is not every ones strong suit.
Grades indicate how much you've learnt, and that is not equal to your knowledge. You might have learnt 5-6 hours for a test but you will remember nothing the next day - people generally think that the amount of time you learn is directly proportional to what you know about something.