Also in MA. I know of communities that had to institute rules about holding kids back for a variety of reasons (not just sports). Personally, I never understood it, but I guess to some it was important. Where I live that is really not the case, i.e. most kids are where they are supposed to be.
I remember meeting a teammate's dad when my son was playing soccer in kindergarten. He was really concerned that his son had an August bday and was going to be smaller, younger, what have you, compared to most of the other kids in the grade and sport. Well the irony was that this kid actually got to be pretty HUGE early on and he sort of dwarfed a lot of the other kids who might've been a little older than him. And skill-wise, he was a very good player. Point being, I'm not sure it really turned out to be much of an issue in his case. (My DS had a fall bday but was always smaller than most of his peers and teammates growing up, and it was actually something he had to work to overcome in some ways.)
Oh, and you mentioned contact sports. Even in non-contact sports, size differences can be important. For example, in baseball, some kids who are 12 years old are big and tall, and can whack the ball pretty hard. If you put a younger and smaller player in the infield, say, especially if they're "playing up" and perhaps not as experienced, they can get hurt if they get hit if they can't make the play or even protect themselves. Same with pitchers on the mound and players using metal bats - getting hit with a line drive can do some damage. Ideally players are around the same age, stage and ability.
To answer the question (wait, what was it again
) oh yes, my son did all types of baseball teams - Rec, Travel, Legion, AAU, now college and coaching. As I mentioned, where I live, locally, things are pretty well matched and I don't recall any problems that way. For AAU, birth certificates had to be submitted or no play. It was such a big issue that paperwork had to be collected before the team even went to tournaments. You could also play up a bit (maybe one level, if capable - not a good idea on most teams that my son was on, i.e. it never really happened) but you absolutely could not play down. Camaraderie is a beautiful thing when it happens. Teams that are most successful are ones that meld the best and have the least amount of resentments.
I notice even in college there is a lot of size variation. But I look at these players and know that they've all had pretty intense experiences growing up in order to build the skills they have and I don't think that's a bad thing. There's also passion there in order to do what they do in college, and a lot of determination and hard work (perhaps especially for those whose experiences don't involve scholarship money, i.e. they're doing it for the love of the game), and those are both admirable and desirable qualities that they'll take with them into the work force and beyond. I am actually pretty blown away with how much DS is getting out of his experience. I would never disparage it.
I don't get the hate for "travel teams" (however you define them) other than that they disrupted the status quo and caused some resentment when it appeared to many that sports had become divided and some of the teams drew players away from other teams for a variety of reasons. I will say that when my son was interviewing with his college coach, the person the college coach called to talk to about my son was his AAU coach (who was, himself, a college coach), not his HS coach. Times have changed, like it or not, and I can't blame people for wanting to get the best experiences they can, if that's what the player wants and/or needs to do. (Many don't, and that's fine.)
Where I live, during the time my son was playing, Rec leagues and field conditions were abysmal, and if one wanted to grow in the sport, there was little choice but to go private. Every community is different and every player unique for what they want to get out of it. Making blanket statements just doesn't make sense because of that. I will agree that some may not either be able to afford to pay for something like AAU or have the family support to do so, but I personally have seen the people running the organizations my son belonged offer reduced or no fees as well as offer team support to help the player get to games or share rooms with other familes on the road if their families couldn't go, etc., but I can't speak for all teams, that was just my personal experience. And we're not talking thousands of dollars here, either, our fees were always very reasonable for what we got in return. We actually have them to thank for helping my DS reach his potential in the sport, because otherwise, it wouldn't have happened where we live.