Contrary to the way people talk about music theory, there aren't 'rules', there are observations that have been made based on music that has been written.
IMHO music theory is a set of rules. The difficulty is there is not one set of rules that perfectly unifies all music and ties it up in a nice bow. So sometimes the rules apply, and sometimes they don't. You can use the rules of tertian harmony to write new music, or write a new form of music that does not conform. It's likely that theory will still provide a certain foundation for understanding the new music.
I only made it through the first three semesters of classical theory, and primarily I learned basic tertian harmony and voice leading for the diatonic 7th chords of the Major and three Minor scale forms.
Most of the music we studied complied very closely with the rules we learned. But it doesn't take long reading through the Real Book 5th Edition before you come across chords and chord sequences that are difficult to analyze using the rules I learned. The chords would be described as non-functional.
I once read through several interrelated threads on different forums where academics discussed the harmonic analysis of four bars from the tune Night and Day: | F#mb5 | Fm7 | Em7 | Ebdim7 | I don't have any trouble playing a walking line over these or similar changes, but I do struggle with analyzing them in a manner that facilitates memorizing the tune in a way where I could easily play it in multiple keys.
In reading the threads, I got the impression that there were certain harmonic rules in place at the time that Night and Day was composed that have fallen out of common usage. Since the context for the old rules is all but lost, there are a number of different ways you could analyze the passage.
After reading through all the threads, this is the analysis that makes the most sense to me:
Most Important Scale (as per Scott's Bass Lessons) This is a pretty good example of why I don't analyze and try to memorize jazz standards, as many of the great tunes I play have sections that are similarly difficult to analyze.
Basic Blues shares many of the rules I learned in classical music theory as well, but also has some unique rules that set it apart, since you're basically using dominant blues scales over all of the chords. A progression may be analyzed as | I | IV | V| but the key center essentially shifts for each chord change.
The thing is, the rules of theory don't necessarily give me a comprehensive understanding of music. But they do give me enough understanding to be able to see the chords and play what I need to play, or to communicate effectively with other musicians during rehearsal. Without theory, I would have to learn everything by ear, and that is very, very time consuming.
