The Common Core Standards for Mathematics describes procedural fluency as "skill in carrying out procedures flexibly, accurately, efficiently, and appropriately." By the end of third grade, students should know from memory all products of two one-digit numbers. By the end of second grade, students should know from memory all sums of two one-digit numbers.
A timed fact test may show that a student has the products and sums memorized, but very little additional insight is gained from these tests. I have observed students struggling with anxiety related to these tests. Even students who do well on them become anxious. And many students become so anxious that they cannot show what they really know.
I teach math intervention to grades 3, 4, and 5. I already know that most of the students I work with do not have their facts memorized, despite the flash cards and timed tests they have taken. I have set a goal for myself this year to develop a better method of assessing fluency. I want to assess flexibility, appropriate strategy use, efficiency, and accuracy. I will record observations of my students. I will interview my students to hear them explain how they know their facts (i.e. do they just "know" them or can they explain an efficient strategy they used to determine the answer). I will use fact quizzes that are not timed. Instead, the quizzes will focus on a few facts at a time and will ask them to explain their strategies.
A small part of me would like to stick with the timed tests. It is much easier to implement and produces easily-reported data. But I am trying this for a full school year, to see how it works. I will keep you updated.