Not to sound stupid, but how do you end up using illiteracy in game? It seems that the more common illiteracy is, the less it matters.
Totally right. If few people can read then needing to read is rare. However, in Bronze Age societies all records are held by religoeus authroities. If you need to go further back than living memory you are going to have to get into a temple and read the records. This is the kind of thing that'll come up a few of times in a campaign, about the right power level for an interest