I had a CS professor who worked like this. We had assignments and tests, and they did have grades, but your overall grade in the course ultimately boiled down to convincing him that you understood the course material. As someone who excelled at the material, but could be a bit hit-or-miss on bothering to complete assignments, I loved it. Students who were used to optimizing their efforts and obsessing over each point hated it. It didn't come up in that course, but the issue with such a grading scheme is that sometimes students and professors really don't see eye-to-eye. Most of the time it's the professor's fault, holding some sort of prejudice. A grading scheme like I described would be disastrous for such students.