Sketches show how your mind works. It might be jumbled or disorganized but it shows thought process and not arbitrariness. How do you decide? Do you decide or consider alternatives? How do things connect inside? How do you solve problems? 

Drawings, the normal kind, show how you can visualize space and objects, depth and weight, the basic grasp of three-dimensional compositions. Photography is a perspective in which someone can view the world through whilst learning how one interacts with light and composition. Taking a picture of a building means nothing (to me) but if you took shots of people in a busy street and connected it to reasons like improving the environment, revamping the street facades or whatever, then that indicates critical thought and a distinct opinion formed. It tells me why you want to be an architect or in the field, something that goes beyond making pretty things. 

Things you mold and create connect with how you think. Some like Zumthor value craft and others value progressive fabrication--the stuff you make and explain tells a lot about your aspirations and identity. Who are you? What are your values? What can you bring with you and offer that someone else lacks? I don't think of the process as a real competition though, more like pairing complimentary students to programs that'll spur mutually beneficial, or symbiotic relationships. 

Think of a the portfolio as a demonstration of skills behind the "I ALWAYS DREAMED OF BECOMING AN ARCHITECT!" line a lot of young people have in their essays. Anyone can say that but not everyone can take the daily barrage of work even if they like making things.

I simply think of it as the introduction to a great novel in the making.

"I'm curious as to what these schools are actually looking for. An understanding of artistic ability? Spatial understanding? Design composition? A diverse skill set? Software/Graphic skills?"

From all my research into how to structure a portfolio (I'm in the process of applying to M.Arch I programs), I've heard all of those things are important, except the last one. If you don't have software/graphic skills, don't include drawings from Illustrator, etc. They want to see how you think and it's not a prerequisite to know those programs--if you are accepted they will teach them to you.

And I've heard from a few architecture professors that photographs are almost never meaningful to them, unless you're a serious photographer and have done a lot of photographic work.

Thanks for the feedback.