So what do you do when you have a class full of students who have already been basically failed by the system and who understand none of the foundations of your subject? If you fail them all, you're the one that is likely to get the ax, even if it's true that none of them understand your material. Most teachers resign themselves to doing their best and administering fairly traditional tests and classwork, so that hard-working students can pass even with no understanding.
This is a fundamental problem of agency costs. The only people who gain from having a good testing system are the high performing students, and we obviously can't put them in charge.
In Britain, where the exams have been dumbed down significantly -- see http://cabalamat.wordpress.com/2007/08/31/gcses-are-dumbed-d... or http://cabalamat.wordpress.com/2009/03/30/do-you-see-with-yo... -- the main driver has been the ministry of education AFAICT, & their motive seems to be to increase the level of exam passes.
Your understanding of basic science improves significantly when you see 'how things fit' in a much larger framework.
Moreover, as your studies progress (sometimes much after the exam) you see new applications of what you have learned. And this sheds new light on the subject and you get deeper understanding of the subject.