Having worked in a couple thrift stores I concur. Only give clothes in good condition. If it's faded, stained, or holey just throw it out because that's what Goodwill is going to do and instead of helping them, you're costing them money (in labor).
Goodwill (supposedly) provides important job skills training, including for many immigrants and refugees.
In Seattle they specifically instruct everyone to give your worn out holey socks and underwear to Goodwill and DO NOT put them in the garbage.