At some point during martial arts study, you're going to get hit. It may be in sparring or it may occur unintentionally during practice. As unpleasant as it is, it's important to discover how you react to being struck. It can be quite telling for some.
The biggest advantage to being hit is that you get an idea of what it might be like to be attacked. Many people have never been hit or it was so long ago that they have no real reference to draw upon from past experience. Being hit makes a lot of people freeze. A combination of shock, pain and often disassociation to the events occur. Different people will respond in different ways to the shock of a punch, kick, knee or elbow. How do you react? Do you freeze? Do you shut down and turtle? Do you get mad? Fight back?
Anyone who takes their training seriously needs to discover the answers to these questions at some point. Once you have experienced a hit, you need to spend time visualizing how you will react if it happens in real life. You will likely also have the double edged sword of adrenaline to deal with, great for strength and fight or flight, not so good for motor skills.
As for my training, it contains a fair amount of contact and more than a little pain. I think it's important. We are very careful, of course, and no one wants to get injured during training, but the addition of increasing discomfort or the shock of a little 'shot' adds an element of reality to the mix. It is not possible to replicate the type of shock and intensity of real combat without hurting each other, but we try to get as close as safety will allow. This gives me confidence that my technique will work. If I'm defending a choke, the choke must get tighter and tighter. If my training partner just sort of puts his or her hands around my neck, there is no sense of urgency to my response. If I'll be choked out if I don't do something quickly, I really learn what will and won't work.
We also rely heavily on 'softening' techniques to disrupt our opponents balance, thought process and energy. This portion of technique can't be overlooked. The next part of the defense won't work if the first part isn't done properly.
In some ways, you learn how to give a hit while learning how to take one.
I have seen some martial arts clubs where there is never any contact of any kind. My fear is that in a real confrontation, students of those clubs would have no idea how to react to an attack if they've been hit. Technique often goes out the window once you're hurt.
I'm not suggesting getting heavy handed in your training or getting too aggressive. Training should still be enjoyable and safe, but if your goal is to learn an art that can save you from a real world attack, you better learn to take a hit.