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It is the difference between knowing "given a task in this knowledge area, I can accomplish it" and uselessly loading up on all that information to perform in a purely artificial situation the likes of which is never seen again.

So, good preparation for how interviews work, then?

Conversely, I was able to pass (with As) some physics exams without really understanding. That became painfully obvious in my solid-state physics lab class.

Memorizing a bunch of facts doesn’t demonstrate understanding of a topic.