maybe because competitive spirit is encouraged by society - people like to know where they stand compared with others. grading wasn't originally included in the traditional styles, but when they were brought over to the west there became a need for grades. parents like grades, it encourages their children (a form of reward that chilrden can hold onto) - also a few martial arts parents i know like to be able to tell their friends that their child has received X grade.
personally i don't believe grades are necessary once you have realised that the best reward is what you get out of training, rather than the physical 'belt'
like bruce lee said - belts are for holding up your trousers