Sym is not exact: just think about dimension (I will work over some field $k$). In your set-up, if M,N,P have dimensions m,n,p then n=m+p. The symmetric square of a vector space of dimension k has dimension k choose 2, and in general n choose 2 will be different from (m choose 2) plus (p choose 2). (They are always different unless m=p=1).
Sym does preserve surjections. I will write monomials in the symmetric power of P as $p_1 \vee \cdots \vee p_r$; such elements span the $r$th symmetric power. If $n_i$ is a preimage of $p_i$ under your surjection, $n_1\vee\cdots\vee n_r$ is a preimages of $p_1 \vee \cdots \vee p_r$ under the induced map on the symmetric power.
However Sym is not right-exact. Regard M as a subspace of N, consider an element of the symmetric square of the form $m \vee n$ where $m \in M, n \in N \setminus M$. This is in the kernel of the induced map $\operatorname{Sym}^2 (N) \to \operatorname{Sym}^2 (P)$ but not in the image of $\operatorname{Sym}^2(M) \to \operatorname{Sym}^2(N)$. Thus
$$ \operatorname{Sym}^2(M) \to \operatorname{Sym}^2(N) \to \operatorname{Sym}^2(P) \to 0$$
is not exact. (You seem to have the wrong idea of what "exact" means: e.g. for a covariant functor $F$ to be right-exact it must send exact sequences $A\to B\to C \to 0$ to exact sequences $FA \to FB \to FC \to 0$ which is stronger than simply preserving surjections).
Sym is also not a linear functor, that is,
$$ \operatorname{Sym}^2 : \hom(V,W) \to \hom(\operatorname{Sym}^2(V),\operatorname{Sym}^2(W)) $$
is not a linear map. This causes technicalities when trying to define the derived functors, but that's not to say it is impossible. See http://arxiv.org/abs/0911.0638