Swimming your own race versus racing others

I realize this question is niave, please go easy on me! :) I don't have a background in competitive swimming and one of the things that confuses me is the contradiction between racing your own optimal pace and racing against the other swimmers in the pool. It seems like swimming with your own optimal pacing should always be your best option. The only exception I can think of is for a slower swimmer to use tactics which attempt to get a faster swimmer to blow their race. This doesn't seem to fit in with the general principles of masters swimming, so why do the higher level competitions seem to cater to it by seeding by other than time?