Americans, do they rate someone's English level based on their ability to use English in realistic situations?

In one class my teacher told us that native English speakers are very practical about language skills. Instead of giving traditional tests, they check someone’s English skills by putting them in a realistic situations to see how they acually use English. He also added that in Europe they had a set of rating system with criteria for each level, like if you want to be qualified for A level you have to be able to hold a simple conversation or something like that.

So Americans, are they that practical about language skills like that? Is there any similar set of rating system in America?