I'm going to describe how they work in principle, and at my institution. As the comments from @Yemon Choi note, you'll really want to talk to your mentor to get a better understanding of how things happen in your institution.
First, the idea of designing your own goals and then being graded on it is central to performance reviews at all levels in my institution. After the initial document, these would usually be discussed and revised in each (yearly) meeting, but it's still up to you to put your goals down in your own words. This is, after all, part of what you do in writing a grant proposal: set your own goals for where you're going to get to.
Second, as far as possible, you should focus the goals you, personally can achieve. For example, you can apply for 2 external grants in a year1: you can't control if they're accepted or not. By making sure you list as goals what's under your control, you minimize the chance of not achieving them.
Third, as noted in the comments, this is not (meant to be) a competitive process. This should be about helping you develop and fit in as a member of staff. It should be about identifying which of your goals you have the skills and knowledge to complete, and which you need more training for. Have you been on the required training courses to administer a research grant, or to supervise a graduate student? Have you got the experience and skills to manage a research group of the size you want (more training to find and take there)? By saying where you want to be in terms of your career, your mentor and your reviewer should be able to suggest what you (and the department, and university in your support) need to do to get there. There's clearly a distinction to be made here between short term plans (do before the next review), medium term (before the end of probation), and long term (before you apply for promotion).
Fourth, make sure that you have plans and goals for all aspects of your job. If you're on a balanced role (as I would expect as you've termed it a lectureship), I would expect a 40-40-20 split across research, teaching, and administration (or service). Whilst the latter two are predominantly duties that are given to you, you should still have medium and long term goals as to how you want to develop your skills and what direction(s) you'd like to go in2. If nothing else, I'd expect "completing the required teacher training course" to be one of these.
On how completing probation is decided, and on probation reviews. Typically there will be a one-to-one meeting with your line manager on a regular (6-12 month) basis. You discuss your progress, saying how it aligns with your goals, and how your goals have adjusted. If, by the end of your probation you're working at a level of a lecturer in your institution, the line manager will recommend you progress. They may consult with other colleagues, particularly your mentor, but I believe the decision is usually down to them alone.
So, you should know what the role descriptors are for the lecturer role at your institution: I would expect that to be on your HR department's website or similar. You should also ensure at each one-to-one meeting that you have an explicit idea of how you're matching up to your line manager's expectations.
I'm not going to cover how the probation process can go badly, or go wrong, as I've very little experience in that, and it seems to be very case dependant. I would just note: this department has already put a lot of time, effort and money into hiring you so they want you to succeed. If you keep communicating well with your mentor and line manager, then you'll usually find it straightforward to fit in and meet expectations: that's exactly the point where probation becomes a paper exercise.
1: You won't have full control over submitting a grant, as your finance department, and line manager, and... will have a say: but you get what I mean, I hope.
2: Even if you want to focus 100% on your research, you can use these goals to attempt to control what tasks and duties you're given in order to get the "least bad" solution for you. Being, or at least appearing, willing to take on your full share of these duties is an important part of fitting in within the department.