for my 2nd competition I started training 3 months out, was putting in 12 hours a week of training because I really wanted to compete and win. of course i lost in my first fight.
i was disappointed, but my jiu jitsu, conditioning, focus and work ethic all improved over those 3 months. and that's when i became less worried about winning, as opposed to just focusing on getting better.
if you approach competitions with a healthy attitude, the side effect is that you WILL get better regardless of whether you win or lose.
competitions will expose your weaknesses. focus on how you lost, why you lost in order to learn. even if you win, figure out what you could have done better. work on those after the competition and those lessons will stick with you for sure. (video footage should be meant for helping you learn
competition will also build mental strength. being able to deal with fear, anxiety, nervousness is all very important. becoming familiar with these feelings will help you deal with them in the future with a calm state of mind. there will also be a point where you will be exhausted, and feel like you've got nothing left. learning to not quit, and learning to fight through that feeling where your body is telling you to give up, is probably one of the most important things a man can learn in these modern times (in my opinion). and i don't mean 'dont tapout no matter what' i just mean fight to the point where regardless of whether you win or not, you can walk away with self respect.
i think it's reasonable to compete 4-5 times a year for a hobbyist. even just committing to a tournament, will motivate/force you to go to class consistently, and that in itself will help you improve.
in short, i think it's very important, if not essential, if you want to see your jiu jitsu improve quickly.
to the poster above: i think competing right away will definitely help you deal with the nerves of competing so there's nothing wrong with competing early on...i guess, my advice is be careful not to get hurt