What does a college degree really mean?

Is there actually any correlation between education and knowledge or competence? While it’s true that a degree makes it more likely that a person may know a particular subject, it is also quite possible that they just managed to get barely-passing grades and/or did a brain-dump after they finished school. (The same applies to many forms of certification, like A+, ASE, etcetera.)
Conversely, there are many people without formal degrees that actually know quite a bit about a particular subject, possibly because of work/life experience.
So what is the big deal with degrees? Is it all about marketing?