As an athlete, you need to have a certain level of confidence in order to compete and to perform well. You need a enough confidence to be willing to commit to your effort, to be able to think you can achieve your goal and to make a committed effort to do so. On the other hand, you can definitely have too little confidence and be tentative about your training and be unwilling to commit fully to training or racing, for fear that you might not meet your goals. Or you can have too much confidence, and in doing so underestimate how good your competition is, how much or hard you have to train or how difficult it is to meet your goal. It’s common enough that you see both ends of the spectrum, both under- and over-confidence… that don’t give themselves credit for their talent and abilities and people that think they are more capable than they actually are.
From my experience, having well-rounded and challenging training helps you to keep an accurate assessment of your fitness level and ability, and helps establish a reasonable level of confidence, limiting your ability to over- or under-estimate your fitness. If you have challenging training regularly enough, and from time to time, have maximal training right up to your limit, then you’ll be very fit and you’ll also know where your limits are. Hopefully that limit is a little above that of your competition, your previous PR, or whatever it is that you need to meet your goals.
If your training isn’t hard enough, focused and well-rounded, then you’ll never really reach your potential. And, along the way you may leave yourself susceptible to making inaccurate assessments of your abilities. If you have a bad day in training or a bad race, you might take it to heart, not realizing you’re actually quite fit. Or, if you always know that you have a little extra to give in your workouts, you might overestimate how much extra you have to give, because you’re always holding back and never actually give your full effort.
You should make your training is challenging, but every so often, you should make training maximal. And, whether you’re recovering, training easy, hard or at your limit, you should take time to think critically about what you’re doing that’s right, and what you’re doing or not doing that could be improved upon. That way you can work to address the problem areas (not enough sleep, poor nutrition, riding too hard or too easy at inappropriate times). It can often help if you have someone else with more experience or just an outside perspective to see where you might have room for improvement, whether that be a coach, training partner, or even a roommate or spouse who sees you training day-in and day-out.
Only when you’re testing your limits do you really find them, and only when you know what your limits are can you be confident up to that point, but not beyond. If your training is only hard enough to be tough, but not enough to ever test your limits, then you’ll always know that you’re capable of more than you’re doing, but you’ll never know how much more, and you’ll definitely never expand your limits and know your fullest potential in the long run.