It is possible to plan a project and its project activities in detail without setting Milestone points in the plan. Provided that all of the activities are completed on time and to requirement it is possible to complete the project successfully on time, with full functionality and to budget.
However, most projects are so complex or undefined in the early stages it is not possible to rely on a finely detailed plan. The beast is too complex and people outside of the project office, such as the stakeholders can find it difficult to accurately understand the real level of progress. A mix of problems and delays can lead to serious project damage before anyone in power has realised there's a problem.
One effective way of dealing with complexities is to group important items at set a marker date or "Milestone" by which the group of activities must be completed. You also need to define in advance some "deliverables" for each milestone so you can assess whether or not the Milestone date has been met. Without a list of deliverable features/actions it is not possible to challenge the assertion by the project team that a Milestone has been met.
When you define a milestone you are declaring an easily understood and obvious measure of progress. The milestones are generally those which a business manager would understand. The deliverables need to be tangible items/services/facilities which can be independently verified as "delivered". When a Milestone has been reached, the project team and stakeholders can decided whether sufficient progress has been made or whether some variation is necessary for the project. If a Milestone and its deliverables move past the due date it is cause for concern.The most difficult case is to realise that the organisation needs to abandon the project or consider some other serious variation to the project plan of resources.
If the project team does not have documented clear milestones which are subject to review it is probably a sign that there is insufficient control and the project may drift off course.