Student attainment follows a continuous distribution. The image below gives a much better representation of how it works.
Why this is a problem
Grades are just lines drawn on an underlying distribution. They don’t correspond to sudden leaps in student attainment. When you treat them like they are discrete categories, it causes big distortions, as you can see in the image below.
Paul and George both have the same grade. But Paul has more in common with John, in the grade below. And George has more in common with Ringo, in the grade above.