Why is confidentiality important in the school setting?

For several reasons... children get lableled quite easily. "Johnny must be a trouble maker since his parents have been called so many times" "Susie isn't very bright since she is receiving some extra help". Little Johnny may be dealing with family issues and this is resulting in his acting out at the moment. Susie may have been out sick and missed some work. These things can stick with a child long after any initial concerns have been addressed. Parents love to compare their child with other children and will often talk to other parents about things they overhear. Things can often be misconstrued or taken out of context when overheard resulting in incorrect, and inappropriate, information being passed around. This can, in some instances, taint a person's perception of that child as they will already have preconceived ideas about them.
It's also a simple privacy matter. If your child was having difficulty in school, would you want it discussed among people who had no need to know? Most people would not want their business being known by those who don't play an active role in their child's well being or education.

I'm not sure what you're referring to by "confidentiality." I was thinking in regards to releasing personal information, school records, etc. but after reading DoulaLC's response, I see that it could be taken multiple ways.