Question: Should one reply/respond to a rejection notice from an editor or from a workshop such as Clarion or Odyssey? If so, what do you suggest?
I think it depends what type of rejection you get. If it's simply a short, generic rejection that means the editor wasn't impressed with your work enough to write something more personal. In that case, I probably wouldn't respond, since there's little to be gained.
On the other hand, if the editor takes the time to give you some suggestions on how to improve your work, that might be worthy of a thank you note. The editor in this case might be willing to look at the next manuscript you want to submit (or in some cases they might actually say they would look at a revised version), so it helps to stay on good terms with them. A thank you note might help them to remember you as someone who seems easy to work with and appreciative of their feedback.
Above all, there is no point in arguing with the editor's comments or decision. You won't get them to change their mind, and you risk making them remember you as someone who is difficult to work with.
If you really feel the editor is wrong about your work, the best thing is to show it to another editor or perhaps a critique group who can give you some other opinions. If everyone else says your work is great, keep submitting until you find an editor who appreciates it. If everyone gives you the same negative comments, they're probably right and you should revise.
Bear in mind that sometimes an editor's decision is not based on the quality of your work but whether it is marketable at the time it is submitted. For instance, if publishers are all looking for a particular type of book and yours falls into that category you stand a much better chance of making a sale. On the other hand, if your book falls within a trend that has recently fizzled (or perhaps been dead for some time), the odds are stacked against you. You can't predict or control this. It's a matter of luck.