In a recent interview, I was asked if I used beta readers or crit partners. I have both, and firmly believe every author should.
A beta reader is there to catch the glaring plot holes. The stuff that just doesn’t make sense. If your hero is walking around a bug infested cellar and brushing cobwebs aside like they’re nothing, he should not then freak out at the sight of a spider five chapters later. They give me feedback on flow, pacing, and the story in general.
A crit partner is different. These are the talented individuals who will go through your manuscript line by line and let you know if phrasing is awkward. Spelling, punctuation, and fine details do not escape their notice. They’re going to catch you if you change a character’s name, used the same city from a completely different book, skip a chapter (jumping from 5 to 7, for example), and argue with you if something is physically possible to do.
I’ve got a group of four beta readers, and 4 or 5 crit partners. The crit partners and I work on a mutual basis…we do this for each other. If comments come back from two or more of either the beta readers or crit partners, chances are I’ll change that spot only because something’s not reading right.
Why do you need them? Simply put, the more feedback you can get on your book before you send it to a publisher, the better. Publishers are looking for reasons to tell you no. They only want to put out the best books, the ones that will sell. If your story has plot holes that you didn’t catch, it’s going to get rejected. The more honest feedback you can get, the better. For both that one book and your writing in general.
Okay, you say, but how do I find good crit partners and beta readers? Start with other writers (published or aspiring), whose work you like. Be willing to not only take critiques with grace and an open mind (they’re not trying to cut apart your baby, but make it better), and return the favor. Beta readers can be friends, but they have to be ones who aren’t afraid to tell you something’s not right.
When you find good individuals, ones that you work well with, don’t abuse them. You can agree to disagree, yes. But don’t fly off the handle at them in an email about them not getting the point of the story. These people are doing you a favor! Don’t repay it by refusing to listen.
BB
K. M. Warfield 
I kind of gave up on beta readers along time ago and only have one beta reader. I now flock to a reasonably-priced editor and give about 1/3rd of my manuscript to edit. I then use those suggestions to edit the rest of my book, and then send it off to my beta reader, use her suggestions, and then to my publisher, who takes it from there. Because even with beta readers and critique partners, literary agents and editors will still tear that book apart and sometimes make it drastically different from how it was when it was submitted. The book doesn’t have to be as perfect as people think when submitting–one minor plot hole won’t ruin your chance of acceptance. The book just has to have potential to sell in both story and writing.
But I gave up on beta readers because I went through too many of them, many who either never finished and had to get back to me saying life got in the way (but whose books that I finished), or beta readers who did finish, but whose feedback, I discovered, actually didn’t help my book at all. And I only discovered this because I used to intern for a freelance editor who edited a quarter of my book, making me realize that even though the beta readers I had that were pointing out stuff were not helping my story at all, as this freelance editor pointed out that my story needed to be re-vamped entirely. These beta readers (who are writers themselves) only looked at what was there–not what wasn’t there.