Robert,
I can understand why it doesn’t make sense to you. A person whose only view of the next life is a “pass/fail” situation, would assume that God has laid everything out on the table and basically said, “Do such and such and you will pass–otherwise you fail.”
The LDS don’t view this life or the next life in that way, so we are coming from a totally different frame of reference. If you don’t look at this kind of subject from our frame of reference, then it is simply not going to make sense since you are “examining it closely” from your perspective which has the built-in expectation that is totally different.
The LDS view this life as a true learning experience, and God is ultimately the perfect Teacher. They are One God, so Each is a perfect Teacher, and the Savior is both the perfect Teacher and the perfect Example. We don’t view this life as “pass/fail”, and we don’t view the next life as “you passed/you failed”. Knowledge comes with effort expended, as well as with faith exercised, in our view of how this life and the next are set up for our progress as spirits and as souls.
Nor is punishment viewed as “you failed–therefore here is your everlasting punishment” and that punishment is the same for each and every person. Punishment is viewed as “you didn’t repent of specific sins which have specific consequences of punishment”, and the ultimate goal is still that spirits come unto Christ and repent of their sins and have the greatest possible glory through Christ that they are willing to receive through their repentance. Repentance means change, and change means growth and gaining knowledge, and “salvation” means the opportunity to gain more knowledge, still. And it is not “esoteric” knowledge–it is knowledge of such things as “how and why does God extend the opportunity to choose with absolutely no forced will placed upon spirits, so that they can choose for themselves and grow through making choices?”
So, again, I can understand why you think our view “doesn’t make sense”, because it doesn’t fit in with what you’ve been taught about this life or the next life. We have profoundly different views of God’s purposes in His having created this world for us.