In the 18th century, a man was considered "literate" if he could sign his name. Later, the ability to read and write text was considered tantamount to literacy, and this perception is still widespread.
However, we must distinguish between absolute literacy (the ability to read and write text) and functional literacy. The National Assessment of Education Progress considers literacy "[the ability to] use printed and written information to function in society, to achieve one's goals, and to develop one's knowledge and potential."
This is measured by the National Adult Literacy Survey (NALS), which measures three areas of literacy (prose, document and quantitative) with scores ranging from one to five. Prose literacy is the ability to read, analyze and comprehend a written work such as an article, novel or journal. Document literacy is the ability to interpret informational documents such as maps, timetables, or warranties. Quantitative literacy is the ability to apply basic mathematical functions to real-world situations.
Exact estimates range from one-third to one-half, but a great deal of the American adult population scored between levels one and three. According to the Survey of Adult Literacy, "nobody in the three lowest levels [can] consistently integrate complex information, take into account special conditions, or use background knowledge to state or solve a problem."

Source:
National Commission on Adult LiteracyThe implications are staggering. I devoted the past semester to studying adult literacy, and this is where I began my research. It all began with
this article by Chris Hedges.
Truthdig is a notoriously liberal webzine, and I wondered if the information was scholarly.
Unfortunately, it is. The journals and federal statistics and international surveys have precisely similar findings. (And I would be more than happy to disclose all my sources.) One-third to one-half of Americans are functionally illiterate. Read the article by Hedges. Go, do it.
Did you read it?
Okay.
Hedges writes, "in our post-literate world, because ideas are inaccessible [...] news, political debate, theatre, art and books are judged not on the power of their ideas but on their ability to entertain." This creates an atmosphere of hostility towards critical examination of ideas, political policies, and intellectual thought, which is often labeled "elitist."
This, I believe, is one of the primary reasons why mainline Protestant denominations are shrinking! Because we "function in a print-based, literate world. [We] can cope with complexity and [have] the intellectual tools to separate illusion from truth."
- Mainline denominations are relegated to the margins, de facto. Our approach to faith is too complex. We are increasingly out of touch with society.
- Roman Catholicism dumbs down its message. (Ex. "you are pro-life or pro-death, you embrace all of the dogma or none of it.")
- Evangelical churches thrive. Their message is clear, simple, and easy to understand. Their services are entertainment. Their teachings accomodate popular culture, including consumerism and American nationalism.
- Any attempt at higher-level religious discourse is drowned out by clergy abuse scandals, debates about evolution, abortion, gay rights, public prayer, etc.
- Vast numbers of individuals disillusioned with the culture wars turn away from religion in disgust. Their opinions of religion are based - not on theology - but on perceived social teachings of the church and the actions of its members.
- Mainline churches continue to lose members to fundamentalism or secularism as our increasingly polarized, illiterate society rejects notions of a middle ground. Middle ground and "shades of grey" are too complex to be easily understood or marketed.
We are left with a dangerous and volatile mix of fundamentalists and secularists. Fundamentalists know very little about their religion, save for how they feel about it. Secularists often know more about Christianity, but certainly not enough to develop an accurate opinion.
Those who turn to secularism instead of fundamentalism are not necessarily more literate/intelligent. The Atheism of Nietzche, Camus and Sartre is radically different from that of Christopher Hitchens and Richard Dawkins, much in the same way that Thomas Aquinas has been replaced by Joel Osteen.
What must we do? What
can we do? I don't know. Being able to clearly articulate our beliefs is one step. Changing the public perception of religion and ending the culture wars is another. Most folks don't realize that "all denominations are not created equal." Yet in a world unable to take into account subtlety, Episcopalians are liable for the bullshit pulled by the Westboro Baptist Church.