I’m asked this question a lot, particularly when I’m running a course.
Yes, I do believe that competitions are a good way to progress. They not only give you writing practice and focus but they form part of the writer’s learning curve. Competitions often have deadlines and themes, too, which echoes the process of writing for a publication, which will almost certainly have deadlines and expect you to write to the brief given.
Not everybody can win or be shortlisted. I’m afraid that rejection is part of a writer’s life and learning not to let it stop you writing is a step forward in itself. If you’re placed in a competition you have something to put on your writing CV, you have validation, you may well have prize money and/or publication.* I have friends who have contracts with traditional publishers for their novels as a result of entering competitions.
*NB A word about rights: If you’re offered publication as a result of a competition win, make certain that you retain the copyright, ie the right to sell your story again. If you sell ‘all rights’ then the competition’s organisers can use your story for profit in the future and you will receive no further fee. The word ‘first’ is important in rights, for example ‘First British Serial Rights’, which would mean the publication would have the right to publish once, for the first time, in Britain. No more. Websites are more complex and will usually ask for world electronic rights. If that’s the case, try to limit the licence timewise.