I love the flexibility of homeschooling. I adore not having to work within a certain grade level just because that's how old my kids are - and I know a lot homeschoolers take advantage of that same exact thing. But for us it has worked out great to assign our kids' "official" grade level based strictly on their age. Here's why it works for us.
1. It gives an easy answer. This is nice for the kids, since they tend to get asked that question a lot. And saying, "Well, I just finished 5th grade science, and I'm playing catch up in spelling, so that was level 1, which is sort of half 1st grade, half 2nd grade, and in reading I'm doing middle school literature studies, and 2nd grade grammar, and my math curriculum is 3rd grade. Oh, and for social studies we mostly do unit studies, which don't really have a specific grade level" is just a *little* cumbersome. It's also nice for me when I'm filling out forms, since most forms are really asking about their age anyway!
2. It keeps expectations realistic. This is good for me because it helps me know what really needs to be focused on, what I can allow to slide for a while if we're having a bad week, and what I should be expecting from them as far as independence, behavior, and maturity.
3. It helps keep sibling comparisons in check. Having kids of different ages and abilities in the same 'class' can make it hard on the younger kids. since they are always 'short' of the older kid. This way I can say 'Ok, second grade is going to do this, and Kindergarten is going to do this', or remind my younger kiddo, 'You're in Kindergarten, this is what you are supposed to do, NOT the same things as the second graders. She had to work two whole years before she got to second grade!'
4. It keeps 'that's not fair' out of the house - some. This goes both ways, but the biggest way it helps us is by allowing me to say, "Hey, second graders have to do more work than Kindergarteners. They go to school a full day, not a half, and they have to do a lot more work. It's not that I'm being hard on you, it's just that your in an older grade!"
Our needs might change as the kids get older, but for now, we are really enjoying the freedom to call them a simple grade, but still use whatever level curriculum we want!