I've been a guitar teacher for about 7 years now and in that time I've spoken to a lot of teachers and we've often discussed music grades. There seems to be a lot of opinions on the subject, so I thought I would share mine.
Learning an instrument should involve a broad range of repertoire and musical challenges. That's what exam boards do a good job of most of the time, although you can't find everything in a grade book. Musicians should listen to a wide range music and learn songs by ear, especially for the contemporary musician.
I often hear, "Why learn a Rockschool piece that's just a copy of a much better song that already exists?". That's a very good point, but often the original songs are complicated. Exam boards arrange pieces that are specific for a certain level of musical knowledge and technique. It's good to hear a student play a piece all the way through and have them feel like they've accomplished something. It is sometimes better for them to learn a piece in a short amount of time rather than have them play a small part of a popular song (there's nothing wrong with that though!).
The positive thing I find about grade exams is that they can be a short-term achievable goal. If the right grade level is suitable for the student, progress can be seen in an ordely fashion. I like to think that If the student has an exam book on the music stand, they can just easily sit down with their guitar and practice the pieces a little each day. An exam book on a music stand may be better than the last 12 months worth of lessons compiled in a pile of ruffled papers.
The downside I often see in students who have been through the grade system is that I find gaps in the students knowledge. For instance, the student may have completed numerous exams and they may have developed a good technique and good efficiency in learning new pieces. The problem is that they've forgotten the basics and fundamentals that would have been covered in the early grades. The key is not to rush through the grades. Go through them with a good understanding of chord names, fingerboard knowledge, key signatures, time signatures and music notation.
If your looking for a goal to achieve, then why not think of taking a music grade? I often do when I need a challenge.
Here are some of the most popular exam boards for the different types of guitar playing: