Is this in reaction to a child need to move up to match competition at his level. Or is this done even for kids who are average or maybe a bit above average at his own age group?
If you are average in your level, and move one level up, you will suck at that level. You will probably be below average and struggle. <- Important keyword
When you move back to your level, you will be above average. Your teammates will feel slow, you can anticipate/read read the game much better... etc.. etc..
It seems that 'struggle' at the higher level, forces players to learn much faster. It can have un-intended consequences in some though (give up playing). You, when going a level up, it has to be a level you can still manage.
eg. a 9yo (second grade), could manage to play with 10yo (third grade), but would never be able to cope with 11-12+ yo (fourth grade)
If you are an adult recreational player, you could move from lower-intermediate, to upper intermediate, but you will flame out at a semi-competitive level.
If you just play with people the same level, or if you are the best amongst the people you play with, you have no reason to learn new techniques or figure out how to read serves or position yourself on the court etc.
For example, when I started playing with the scholarship guys I had to learn a kick second serve (top spin serve that bounces very high to opponent's backhand) or they were just smacking them for winners every time.
Obviously you can't advance too quickly or it would be like neophytes playing with experts, but amongst the people I played with it was accepted that you always wanted to be playing the people who were better than you.