Depends on the college--when dd started community college, they didn't request grades at all. Now she's applying to universities and it really does depend on the individual college---some want traditional transcripts with letter grades (we provide the cc transcripts and a homeschool transcript, as others have said, the hs one reflects mastery.) Others want more of a portfolio or resume-style description of what the student has been doing. There's nothing stopping a hsing parent from assigning grades or issuing a diploma where we live. That's usually just one portion of the application process and other information like interviews, essays, SAT scores, portfolios, outside classes, etc. will back up whatever grading is given.
We just sent off the LONGEST application ever and this school wanted a detailed description of the subjects studied, materials used, grades earned, etc. They also wanted an explanation from me regarding our "homeschool philosophy" and a description of the "methods of evaluation" that we used during her hsing and a number of other essays from both dd and myself.
No other school has wanted as much, and dd has always unschooled--but it's really just a matter of packaging the information in the way the school wants it.