I know this is a casual forum, and we're mostly making light of this article, however there is a valid reason that schools have adopted this idea.
The idea is that you're rewarding the child for putting in effort, which has been shown to produce better results for complex cognitive tasks. In fact, there's been a fair few articles which have been either directly related or tangentially related to this, linked on Slashdot.
In addition to this, the student which is rewarded for their innate ability or luck, does not necessarily learn to continue to put in enough effort. This is particularly prevalent later on in life, when study for almost everyone becomes quite a lot harder, and persistence pays off.
Lastly, there is more of an appreciation for the random/luck component of the outcome, which probably makes up more than 99% of the probability of a successful outcome. I was a huge nerd at university, I put in a lot of time and effort, and I'm blessed with a reasonable innate ability to learn easily, and got grades that were quite good. However, I like almost all of the other nerds I knew, had a lot of courses that I did not achieve good grades for, when my competency in that course was amazing. Similarly I had some courses that I did achieve amazing grades for, when my competency in those courses was far below that suggested by the grade.
As always, a caveat, the topic of motivation and what drives people, is hotly debated and researched. Most of the research hasn't been that great into this, but some of it has, and those ones suggest that on average, this is a better method for raising our children.