I don't think contests are a bad thing at all. Someone has to win and usually prize money and publication go along with that. I haven't really entered many contests, but it's something I'm looking into more. There is no reason not to try both contests and regular submissions. Yes, contests usually cost money to enter, but what seems to be the norm is a $1,000 prize. I say give both roads to possible publication if you feel like you can swing it. And good luck with whatever you decide.
Well, first, no, someone does not have to win. Contests often end without a winner, when there are no entries the judges think are good enough.
A thousand dollar prize is most definitely NOT the norm. The norm is nowhere close to this, but it wouldn't matter if the contest winner received ten million dollars, you are not going to win. You simply aren't. The contests that you do stand a chance of winning are completely worthless.
Very few even offer real publication. Being published in the Nantucket Monthly Newsletter is not publication.
Not only are very few contests credit worthy, winning one of the bad ones can harm you with magazine publishers, and rightfully so.
The only thing entering the great majority of contests does is take money out of your pocket, all for an
infinitely less chance of getting a penny of it back.
There are a tiny few worthwhile contests out there, but they're few and far between. Very few and very far between. I've seen writers waste years on contests, only to realize there is no reward in doing so. Worse, they finally win one or two of the worthless contests, and only then learn that winning harmed their careers more than losing.
The simple fact is that the sole purpose of the great majority of contests is to make someone money, and that someone is not the writer who enters, or the writers who "wins".