There's a bit of discussion on grading in the beginning of the Season 5 rules thread here:
http://www.racedepartment.com/forum/threads/season-5-rules-discussion.59392/
The gist of it, from what I understand, is that the grading:
1) ensures new drivers do not pick a car too fast for them and get discouraged when they crash.
2) are able to compete against drivers of a similar skill level to them
3) to promote fair competition, by not allowing faster drivers to drive in slower competitions (re point 2)
Which all sounds good, and theoretically very nice. But in practice, I'm not so sure.
Looking over the rallies this season, there's been A LOT of retirements, in all the classes, so I'm not sure whether the choice of car plays such a big role. I know for me personally, when I crash it's due to lapses in concentration and missing pace-notes. Although a faster car doesn't allow as much time to correct as a slower one, if I'm full throttle towards a junction, I'm going to miss it in a WRC Fiesta, or an N14 Subaru.
And looking over the points table, there's clear-cut leaders in all the competition classes. And although the grade competitions are closer, personally, I don't even look at those. (besides which, the grade 3 drivers in group N cars aren't going to be able to compete with the S2000 runners.) I feel like it's a handicap, and I'd rather compare myself to other drivers in the same class, regardless of grades.
If you look at the RDRC-3 competition, where it's open to all grades, you can see that the grade 1 drivers are out in front, which is what I think the grading system tries to prevent in other categories. But personally, I don't see what the problem is with fighting for 8th place in the championship, with drivers of your skill. I'm having a hell of a lot of fun competing with drivers for 2nd place in the RDRC-2 championship, and I don't need to be fighting for first to have fun.
As long as there are a number of competitors racing, then there will be drivers with your skill level, and hence, fun will be had. If the grading system turns away a few new drivers, then for me, that's a horrible outcome.