June 2006 (perspective of a master's student)
These are observations I have made about the nature of grades in undergraduate college classes. I have survived several dozen classes as an undergraduate at MIT and also served as a teaching assistant for one class, so these opinions reflect my experiences as both student and teacher. In order to avoid repeated instances of he/she, him/her, etc., I will use masculine pronouns throughout this document, but of course my observations apply equally to female students as well.
Grades do not necessarily reflect effort
It is understandable, especially in an intense class with a heavy workload, for a student to somehow expect his grade to reflect the amount of effort he spent on the class. The student may compare himself with his peers and wonder why some seemed to have received higher grades when they did not seem to need to work as hard (conveniently forgetting to compare himself to those peers who worked harder but received lower grades). However, as far as I am aware, there is no monotonically non-decreasing function relating student effort to class grades. (For example, the official grades policy at MIT makes no mention of amount of student effort as a factor in determining grades.) Of course, better grades are often correlated with greater student effort, but effort alone does not determine one's grade. It is dangerous to have a sense of entitlement that "If I work X hours, then I deserve a grade of Y" or "Z got an A last semester and put in W amount of work, so if I put in at least W amount of work, then I should also get an A". Often times, there is simply no such thing as an "A for effort".
Grades do not necessarily reflect aptitude
A student who receives a B or a C in a class might feel that his grade does not justly reflect his aptitude for the content taught in the class. He probably thinks that he deserves an A but was robbed of that grade due to some inane reason: "But I'm confident that I know this stuff really well ... I just messed up on this one assignment and made careless mistakes on the final exam ..." Maybe he is concerned that potential future employers might see his grade and think that he does not have sufficient mastery of the material. Some of my students for the software engineering lab class may have been concerned that if they received a B, then job interviewers might think that they weren't good programmers or did not understand software engineering concepts simply because they received a B and not an A in this class. Although employers might look at grades as a first-pass filtering step, what they really care about (or, rather, should care about) is real abilities and work ethic. If I were interviewing for a software engineering position, I would ask the candidate about technical concepts and his work experiences. If he were able to explain himself clearly with competence and enthusiasm, that would more than make up for a lack of an A grade. Conversely, if I interviewed a candidate who received an A in the class but didn't seem to be able to speak competently about his technical experiences, then I wouldn't care about his A grade—I would hands-down prefer the B candidate who actually knew what he was talking about.
Grades only reflect how you perform what is required for a class
So if grades do not necessarily reflect effort or aptitude, then what do they reflect? They simply reflect how well a student has performed what is required for a class. Look at any class syllabus and you will see exactly what is required to get an A, B, C, etc. Usually this will consist of some combination of completing homework assignments, taking exams, participating in class, and perhaps working on a term project. There is no magic involved ... the guidelines are there on paper, and if you satisfy them to a certain level of excellence, then you will earn a certain grade (of course, there are varying degrees of subjectivity in grade assignment, but those factors are out of your control as a student). It's possible to get an A in a class while the genius sitting next to you gets a B even though you know that he has a far greater aptitude for the material than you do, simply because he didn't pay attention to the syllabus requirements for an A grade. At the same time, it's entirely possible to put forth much more effort than your friend but get a B while he gets an A without even breaking a sweat. Perhaps he knows how to study better, he doesn't procrastinate, he knows how to seek help when necessary, or he's a better test taker, but just because he gets an A and you get a B, it doesn't mean that you are any less "smart" or "gifted". Classes are nothing more than structured entities designed to instill a certain category of knowledge and develop certain skills in students, and grades are nothing more than some formulaic assessment of how well a student has satisfied the requirements of the class.
Why you shouldn't get arrogant only because you have good grades
You should never be arrogant or overly proud simply because you received good grades in your classes, unless you think that satisfying artificial requirements set by your instructors is a highly valuable accomplishment in itself. After finishing a class, you should be proud (but of course, not arrogant) that you have mastered difficult academic concepts, honed your practical hands-on technical skills, related your learning to previous classes so that you develop a more elaborate network of knowledge, etc... An A grade by itself means nothing if you completely forget what you have learned from the class after a few months (of course, nobody expects you to remember all the details, but you should at least remember general concepts). In other words, if you received your A simply by sniping problem set answers from office hours or from your friends and cramming like crazy for exams without actually trying to absorb the actual material and integrate it with your existing body of knowledge, then your A in this class should not be a source of pride for anything other than your answer sniping or exam cramming abilities.
How important are grades?
From the tone of my observations so far, it seems like you shouldn't care about grades at all, but most of the time, the contrary is actually true. When people ask me how important grades are in college, I will respond with my own question: "What do you want to do after you graduate?" Your post-graduation plans (not parents, not peer pressure, not personal ego) should be the most important factor in determining how much grades matter to you. If you are applying to medical school, you probably need a pretty high GPA (grade point average) so grades probably matter a lot. If you are applying for Ph.D. programs, you should be much more concerned about gaining research experience instead of simply getting good grades. If you want to begin full-time work, you should focus on internships and professional networking in addition to your academics. If you are going to inherit your parents' billion-dollar fortune after you graduate, you shouldn't care about your grades at all, as long as you pass your classes. For almost everyone (except for the uber-wealthy heirs), grades will somehow matter, but it's up to you to determine how much you want to stress about them.
Required classes that you don't care about at all
Throughout your undergraduate career, you will invariably need to take many required classes that you don't really care about at all, and you have a choice to either not worry about your grades or to 'eat your peas' and work hard in them to try to get good grades even though you have little to no interest in the class material. Your choice of what to do about these classes depends largely on how important your GPA will be in determining what you want to do after you graduate. There is nothing wrong with doing the answer sniping (legally without cheating) or exam cramming thing just to get high grades without really understanding the class material if you simply need to boost your GPA, but if you ever need to demonstrate to somebody that you've mastered the material for some class, you better be prepared to actually learn it.
What to do about grade inflation
Grade inflation is the phenomenon that has crept into more and more colleges in recent years (I am optimistic that MIT has not been stricken with this plague as much as some other schools). Many professors are now reluctant to give C grades (or sometimes even B grades) to students for fear of angry parent complaints ("I didn't pay $40,000 per year for my genius child to get a B!!!"), student rights protests ("We have a basic human right to get an A"), or simply due to the momentum of grade inflation happening in other schools ("I want our students to be competitive with students from other schools, and if they're all getting A's, then we need to give all A's as well ... sigh.").
So what should you do if grade inflation is rampant in your classes? You should realize that, just as with monetary inflation, your A grade is worth less (not worthless, but simply worth less) in the presence of grade inflation because more people have A's. If only 25% of the class gets an A, then there is a decent chance that those students all know their stuff pretty well. But if 85% of the class gets an A, then you would lose all your marbles if you bet me that all of those students were exemplary. Thus, you will need to make an extra effort to really make yourself stand out among the sea of A students.