Once musical experience is expanded beyond playing in jam sessions, such as playing in a concert band, big band, sax quartet, or small combo then the ability to read music---especially sightread music is essential to be able to participate. It is nice to be able to tell a good story, but that is a far cry from being able to read a book.
That said, it appears that the word "literacy" can have both meanings:
lit·er·a·cy
ˈlidərəsē,ˈlitrəsē/
noun
noun:
literacy
- the ability to read and write.
synonyms: ability to read and write, reading/writing proficiency; More
"literacy and numeracy are the first goals of education"
- competence or knowledge in a specified area.
"wine literacy can't be taught in three hours"