You aren't defined by your rating (so go ahead and play that tournament!)
The title of this post easily could have been: Why every tournament matters but typically what keeps most people from playing tournaments tends to be fear of losing rating points
I will like to address this fear as follows:
(1) You are not defined by your rating
While it is true that a rating reflects your strength, it is not true that you are only as strong as your rating.
There are many factors that go into what your rating is, including how many tournaments you play in, and within each tournament there are many factors that impact how you perform, including your tournament conditions, what positions you ended up playing and even luck.
What we should gain from this insight is that the ratings are just an estimation of performance, but can even fluctuate anywhere between 100-200 points. The fact that you lost 80 points from a tournament does not make you a weaker player - but it reflects that you are playing off form. (an example, Teimour Radjabov achieved a high rating of 2793 in November 2012, then suddenly dropped tons of rating points in the coming year. He is not "bad" because of his low rating, but his low rating reflects his poor form. He has recently been making steady gains - and likely will be returning to his top form in the coming year)
If that didn't convince you, then consider this: does losing 50 points suddenly make you forget how to play chess? Has any of your knowledge suddenly disappeared along with the rating points?!
(2) Every tournament counts
This means that every tournament is beneficial. It is true that it may lower your rating, but we have just discussed that a lower rating does not mean that you have suddenly got worse at chess.
If we work hard to figure out what went wrong in those tournament games, and work even harder to address those weaknesses, then we come back stronger, in playing strength.
We can only improve from playing, and you might even say we improve the most from losing.
Chess isn't a game about the rating - it's a lifelong path of improvement where our improvement just happens to be conveniently measured by rating - think long term, that's what's most important!
(In short) Don't be afraid of losing rating points, go sign up for the next tournament!