To answer your question in a slightly back to front manner.
The major disadvantage of a seniority based system of promotion is that a move from one company to another will almost always result in starting back at the bottom. An exception might occur when a company is recruiting direct entry commanders. In this case you start at the bottom of the seniority list generally, but only at the bottom of the captains seniority list specifically. In case of redundancy you might have no overall protection, but your command seniority would otherwise remain higher than longer serving F/Os within the same company.
Clearly it is easier for short serving pilots to move from one company to another than it is for longer serving pilots. In the case of a company failing then the seniority list becomes meaningless and everybody is looking for the entry level on another companies seniority list.
The advantages are that when a pilot or group of pilots join a company they do so in order of joining date or relative merit at the bottom of the seniority list. All of these pilots are assumed to be potential commanders for that company. Some may have carried that rank previously, most probably haven't. In most companies it is necessary to achieve a seniority position nearly half way up the list before the opportunity for a command presents itself. When this occurs and assuming it has taken a few years most of those pilots at this point will be assesed by the training department for their suitability ( experience level, training reports, maturity, etc ). Most will be put forward for command training. Having waited years for this opportunity it is reasonable to assume that most pilots would be ready and quite able to pass the necessary command checks. They will have amassed not only a significant amount of experience, but also a significant amount of that companies experience and its own distinct requirements for the people it is about to promote into its management structure.
It would be very unfair for the individual and bad practice generally to promote individuals out of sequence for no good reason. Seniority generally reflects the level of experience within a company. Salaries by virtue of increments are often tied to the seniority level. The one promotion to Captain is considered subject to suitability by virtue of that seniority. From the companies point of view it rewards loyalty and ensures the prospective Captain is well versed in that Companies own operation. The individual can asses their own command prospects ( from a time point of view at least ) based on their seniority number as it rises relatively from year to year.
Most companies also have a sideways promotion structure often referred to as appointments. These are usually offered for training positions or office/classroom positions (managers /instructors etc). This enables a company to select from anywhere within its ranks those individuals who it deems may have a talent that makes them suitable for one off positions within its training or managemnt structure. This is perhaps no different from that you are used to within other organisations. Individual pilots can also lose these positions or resign them without normally losing their relative seniority position as line pilots.
I hope this explains the position with a little bit of clarity. In summary all pilots are assumed to be commanders, and although not all will become so in order of seniority,the vast majority will. It is only right that given this general assumption each individual should be considered for promotion by relative order of joining date.