When I was exclusively a music lover, and not yet a musician, I enjoyed going to see cover bands, but I was perfectly able to notice when they weren't good - simply because in those cases the songs I knew and loved did not sound like the songs I knew and loved.
It doesn't matter that I was reasonably music-savvy and could tell that the singer was out of his range and sounded nothing like Sebastian Bach, or that the guitarist's grasp of scales definitely wasn't going to cause Kirk Hammett any sleepless nights, or that it bloody well wasn't Geezer Butler playing on that version of Heaven And Hell, etc. Even if I had been without that knowledge, the songs would simply have sounded wrong.
However, many people like to go to a pub where a band is playing and throw a few shapes after downing a few pints, and aren't able to tell the difference between a good and a bad performance, even when they know and love the songs they hear. And if they have a good time and come back, landlords will be happy to have them again.
As many said before, it's a matter of what you want to achieve. The better bands will make progress and have a chance to leave the pub circuit for something better, while the crap bands will stay where they are.
When I say 'have a chance' I don't mean they will necessarily make it, because the market is tough, but at least they'll be able to try.
Having said that, there are many examples of worthless bands or individuals who go on to make it. Unfortunately that's a fact of life and it happens in all fields. I work as a technical translator - among other things - and have got used to clients not being able to tell a good translation by someone highly qualified, who knows the subject inside out, from ungrammatical offerings by someone who just happens to be Italian and speak a bit of English, and whose actual day job is being a waitress or a builder.
Choosing the less good - but invariably cheaper - option will usually come back to bite the client on their behind, in due course, but in the meantime it's quite galling to be part of such an uninformed selection process and often lose out.
The only thing to do is persevere, because we love what we do and we love to do it to the best of our ability. And there are still people out there, in all fields, who can tell the difference.