An age based team is age qualified based on the age of its oldest player.

A grade based team is grade qualified based on the highest grade on the team.

There is nothing crazy about the above.

The problem occurs when grade based teams enter age based tournaments and when age based teams enter grade based tournaments

Parents should push directors of grade based teams to only enter grade based tournaments
Parents should push directors of age based teames to only enter age based tournaments

There are plenty of both types. If you enter a tournament with rules that put your team at a disadvantage, deal with it.

It is not crazy it is the rules.