The word "illiterate" is used technically to refer to someone who can't read or right and pejoritavely to refer to someone whose intelligence is not up to par (by an arbitrarily imposed standard of the person making the criticism). But defining literacy as "the ability to read and write" is an exceedingly narrow way to think about the practice of literacy. Setting literacy in the broader context of learning by authentic participation in meaningful activities, rather than as a set of skills to be acquired by rote repetition, makes a difference in the way students think about the value of school.
Consider, for example, the three definitions of "literacy" given by Dictionary.com:
That's a perfect example, because contrasting #1 and #3 demonstrates how the definition of "literacy" shifts culturally. "The ability to read or write," the common definition of literacy, is slowly giving way, practically speaking, to computer literacy. Presently, one must usually be "literate" in the first definition give in order to function and succeed in society; as technology progresses, the need for computer literacy will increasingly be non-negotiable.
JoAnne Larson and Jackie Marsh argue in Making Literacy Real (2005) that learning is best defined as "changing participation" rather than as a set of skills to be acquired through rote repetition. The latter position is held by George W. Bush and advocates of No Child Left Behind. Bush said,
"The building blocks of knowledge were the same yesterday and will be the same tomorrow. We do not need trendy new theories or fancy experiments or feel-good curriculums. The basics work. If drill gets the job done, then rote is right." (quoted at Rethinking Schools Online)
But literacy studies over the past three decades have made it abundantly clear that skill-and-drill practices are not as objective as Bush and others would think, because "knowledge" is not constructed the same way by all cultures even within the same geographical areas the U.S. [S.B. Heath, Ways With Words. Cambridge University Press, 1983]. Furthermore, "rote repetition" of particular skills in isolation, such as learning phonics charts and diagramming sentences, is often so disconnected from any kind of authentic learning experience as to seem irrelevant to many young students, especially those coming from backgrounds that don't construct literacy in the same way as the school does.
In addition to this, adults use their literacy "skills" for a purpose: communication, activity in society, democratic participation, and so on. Why are kids not allowed to participate in authentic activities for the benefit of society until they've learned a certain skillset?
Learning the rules of reading while immersed in the context of actual, meaningful participation in literacy acts invests real-life experience into the educational process. As skill increases, participation changes, but the key element is this: students are already authentically participating in literacy, making real contributions to society even at a young age. Authentic participation is not delayed until a certain skillset is acquired.
The Brilliant Weasley Drop-outs
JoAnne Larson and Jackie Marsh, Making Literacy Real. Sage Publications, 2005.