Traditionally, Literacy, is the ability to read and write in a given language. In modern context, it means reading and writing in a level that is adequate for written communication and generally a level that enables one to successfully function in a society.
The standards for what level constitutes "literacy" vary between societies. Other skills such as computer skills or basic math skills may also be included.
Many policy analysts consider literacy rates a crucial measure of a region's human capital. This is said to be because literate people can be trained less expensively than illiterates. Literacy is widely believed to improve people's income, health and welfare by enabling inexpensive mass communications about news, markets and health information. In Kerala, India, for example, female and child mortality rates declined dramatically in the 1960s, when girls schooled to literacy in the education reforms after 1948 began to raise families.
Some of the most effective methods of teaching literacy involve direct instruction of simplified phonetic systems.
In English, for example, the Distar system developed by the RAND Corporation has been adapted into a simple literacy instruction manual ("Teach your Child to Read in 100 Lessons") that permits a literate adult to teach an illiterate child by simply reading and following instructions. All of the complex instructional lesson design, skill building and optimal repetition and review have been "canned" in the book's instructional design.
A computer program is even available (http://www.jerrypournelle.com/Reading) that uses a similar system, but directly pronounces and tests the lessons, eliminating the need for a literate adult.
Comprehensive phonic programs exist, based on such systems as the Orton phonogram system, whcih was originated to teach brain-damaged veterans to read again. Using the 73 Orton phonograms and 14 spelling rules, 50,000 English words can be accurately pronounced and spelled with only 23 exceptional words. Although quite hard to learn, and far more exacting to teach, such systems provide students with powerful basic language skills.
A key technique in many comprehensive phonic systems is a spelling copybook, a sort of personal dictionary in which a student keeps a personal alphabetized bestiary of words for review. The copybook usually shows how the word is pronounced, accented and syllabized, and how standard spelling rules are invoked to determine its conventional spelling.
Several learning styles challenge conventional literacy programs. Visual and auditory learners often do well with conventional curricula. Kinesthetic learners often do well to use a copybook, less classroom practice and dictation, and more pencil practice, with a collection of magnetized letters and a steelboard to manipulate word-roots, prefixes and suffixes.
The degree of comprehension of course varies from person to person, and so the conditions for a certain state of "literacy" differ depending on who is defining the standard. For one attempt to define a standard of literacy, see  (http://www.literacyonline.org/explorer/defliteracy).
It is well-established that children become able to "blend sounds" at different ages. Thus phonetic systems often cannot be applied by very young children.
Experts differ in their approach to this issue, some advocating a delayed, but more rapid acquisition of reading by means of phonetics, while others advocate early acquisition of a basic vocabulary through a "see and say" method.
A secondary advantage of phonetics is that it improves readers' spelling and writing abilities. See and say methods are said to increase the word acquisiton rate and reading speed of many students.
While young children often require several hundred hours of instruction, spread over much of a year, motivated adults using a good instructional method can often acquire basic literacy with forty or fewer hours of instruction.
"According to UNESCO statistics, almost a billion illiterates remain as we approach the year 2000."  (http://www.literacyonline.org/explorer/overview)