I haven't played it in forever, but I think elves come in different varieties, mainly some that give permanent upgrades (increasing your health, reduching health of bosses, make you immune to spikes maybe?) and single-use ones. Personally, I just go for the ones that give permanent upgrades, probably the ones that increase live, but it depends on which I get. Elsewise, just use the ones that seem useful - I mainly try to avoid using them, to get a good grade (the grades were included for weirdos like me), so I never cared too much about them.
You should get a break-down of you grade at the end of each mission, but mainly, if you use cyber-elves (and this includes the ones that give permanent upgrades), your grade will drop. I think cyberspace is an exception, in that you can use them in there without score penalty. Elsewise, just be fast, kill enough enemies, don't take hits and fulfill the task. Easier said than done, I know.
In general, your grade doesn't matter much. I think, if you get to a boss with a grade A or S, the boss will have additional attacks, and you are able to learn one of their attacks, too. Might be wrong, maybe that is just in the second game? Elsewise, don't worry too much about them, and just use elves as you get them.
Oh, you unlock minigames, depending on how well you do. If you get a score of 100 in every single mission (including the ones with boss rushes, really every single one) you get one where you play Phantom (the guardian from the first game) and do some highscore minigame. There are others that aren't that insane to get, though.
Also, not succeeding seems like a thing the series would do. It is totally a downer series, I do like the story, though. In any case, congrats, it's a challenging game. I hope you had fun. I guess my post comes a bit too late, though.