This paper introduces a framework for comprehensive testing and evaluation of the phasor measurement units (PMUs) and synchrophasor systems under normal power system operating conditions, as well as during disturbances such as faults. The evaluation is suggested to be accomplished using three different testing approaches, namely, type testing, application testing, and end-to-end testing, for each of which, systematic characterization of the hardware and software modules is presented in detail. Through the proposed approach of PMU testing in a controlled environment and detailed analysis of different estimation techniques used in PMU algorithms, one can gain insights on which estimation technique is most accurate for a certain end-use application. This hypothesis has been validated through series of realistic test scenarios on a 23-bus system running on an Opal Real Time simulator using the hardware-in-the-loop interface. In addition, the impact of synchrophasor estimation errors and their propagation from the PMU toward the end-use applications has been quantified for a fault location algorithm that uses only PMU measurements.