There is a good reason for this, having nothing to do with ego or misunderstanding of the game. Many poker players, probably even the majority of regular players, understand basic concepts like hand selection, pot odds and opponent playing styles quite well. However, when they get into a game, something strange happens. They start making calls that they know they shouldn't, they play hands that they would laugh off as garbage in any kind of poker forum analysis, they find themselves mechanically pushing chips into the pot on a draw even though they know the odds are against them.
Again, lest we feel this is merely a poker phenomenon, remember that the same thing happens in chess. Players capable of sparkling post-game analysis find themselves in tournament games falling into the basest of traps, making the most fundamental of blunders and even forgetting elements of basic theory.
I'm sure this same phenomenon occurs across many fields, from acting to golf to surgery (hopefully a problem with that last skill is weeded out in the medical school stage). So what is it? Is it merely the pressure of "playing for keeps?"
Put simply, the answer is yes. When an individual is put in a stressful situation, which we can define as a situation in which the outcome matters, the fight or flight response occurs. Adrenaline floods the system, the brain chemistry changes, one becomes, quite literally, a different person. Some of the physiological stress responses include:
Accelerated heart and lung action
Tunnel vision and accelerated reflexes may be great for escaping predators or even driving towards a basketball hoop, but they suck for seeing a four move mating trap that capturing that knight will get you into, or deciding whether it's correct to draw at that nut flush draw to win a $4000 pot.
The point here is that poker players and chess players whose results do not match up with their perceived ability should not beat themselves up for "just screwing up" when the pressure is on. The pressure makes a real, physiological difference.
So how does one overcome such a problem, a problem seen in all walks of life? (Take for example, the issue of romance. It's a common trope that the guys who do the best with women are the ones that are "cool," that "don't seem to care" whether they get the girl or not. It's not so much that they don't care as that they don't let that caring change their brain chemistry the way other very eligible but less successful bachelors might.) One way is to find areas that your brain does not perceive as stressful and try to excel at those. The problem with this is that if your brain doesn't perceive obtaining a particular result as a stressful undertaking, it probably isn't that important to you.
The other is to simply put yourself in these situations over and over again until they become so common that your brain no longer percieves them as stressful. How many situations will be required will be different for each person, but this, in large part I think, is the true "benefit of experience."
Alcohol and/or drugs may be an option too, but the action of these on the brain is unpredictable and may not have the desired effect. Also the threats of addiction and health problems are probably not a worthwhile exchange for the positive benefits.
So what are the useful applications of this analysis?
The first is that practice (in the sense of preparation for a meaningful activity, not in the sense of its application, as in the title of this post) is most effective if something is really at stake: The trick is finding a form of practice that has this characteristic while still being classifiable as "practice." This may mean a chess tournament among friends where the prize is a week of possession of a coveted item, such as a jointly owned plasma television, or a weekly poker tournament where players earn points based on their finish and at the end of the year, the highest point winner is put into the WSOP main event (20 players putting in $10 a week for 50 weeks will produce the $10,000 required. $10 is hardly prohibitive but the reward is tangible).
The second is an understanding of the meaning of experience. Performing badly when you know you could do better is not a personal failing, not a fault of character or intelligence. It is simply a lack of the amount of experience needed to train your brain not to shift into "stress mode."
Hope that makes you feel better.