The P-bracket holds the propeller shaft out in the water near the propeller, bolted or glassed through the hull. It takes the propeller's thrust and every vibration. If its base or fastenings let go, the shaft runs out of line and the hull round the bracket starts to work.
How a surveyor checks it
With the boat hauled, load the propeller by hand up and down and side to side, and watch two things: the shaft in the bearing and the bracket on the hull. Movement in the bearing is a worn cutless bearing. Good Old Boat's Bill Sandifer uses a feeler gauge past 1/8 inch and calls more than 3/16 inch too much. Movement of the bracket itself is this finding.
Outside, look round the base for cracked gelcoat, failed bedding and rust or weeping. Inside, find the fastenings: PBO's Stu Davies notes on one boat the big issue was fixing the bracket's bottom bolt. Check nuts, backing plates and any wood backing, which softens when wet.
What decides the grade
The bracket shouldn't move at all. A bracket moving on the hull, or cracks round its base, is an A. Movement at the fastenings or failed bedding is a B. Corroded fastenings on a firm bracket are a C.