In real life--
Able to
read and write.
In roleplaying--
A good
roleplayer. Specifically, a literate roleplayer does not use chatspeak, spells word correctly, and has proper usage and grammar. Literates are less likely to be
desperates or n00bs and generally roleplays well.
If you see a thread with "LITERATE ROLEPLAY/LITERATES ONLY" in the subject line, it means they only accept people who have good grammar.