What it means to be literate is not an absolute standard even now.  This was even more true in the Middle Ages when the majority of the population couldn’t read at all, a certain percentage could read and not write, and the only way to be ‘literate’ at the time was if a person could read Latin.  Literacy in other languages didn’t count.

Wales, as always, went its own way.  Taliesin, writing in the 6th century, wrote in Welsh.  His is the first of a long tradition of Welsh literature–in the Welsh language–outside the control of the Roman Church.  “The professionalism of the poetic tradition was sustained by a Guild of Poets, or Order of Bards, with its own “rule book” emphasizing the making of poetry as a craft. Under its rules poets undertook an apprenticeship of nine years to become fully qualified. The rules also set out the payment a poet could expect for his work. These payments varied according to how long a poet had been in training and also the demand for poetry at particular times during the year.”

http://en.wikipedia.org/wiki/Medieval_Welsh_literature

Still, this poetry was not, for the most part, written down.  It was sung, and only at times or under certain conditions, put to paper (which has come to us, fortunately, through the ages).

Taliesin was working in the ‘Dark Ages’–when monasteries were the last bastion of an educated populace.  Even there, however, literacy was limited:  “A number of factors suggests that certain scribes who were engaged in copyist work in the first seven centuries or so of the Christian era were trained in a very mechanistic form of writing. The use of continuous script, without word breaks, suggests a very mechanical, letter by letter, approach to copying. Petrucci (Petrucci 1995) goes so far as to suggest that such works were copies for the sake of copying, rather than works for proper reading, and that some of the scribes selected for this work were actually the less intellectually able, who were trained in it as a mechanical skill.

The term writing was used by medieval authors, whether they were actually carrying out the process of putting the words to parchment themselves, or whether they were dictating. One imagines that scribes of this type must have been rather like 20th century typists who could not only render the words of the master in the appropriate medium of the day, but may have exerted a little influence over such matters as spelling, style and grammar; educated, undervalued and ultimately anonymous.”

http://medievalwriting.50megs.com/literacy/writing.htm

“A Companion to Britain in the Later Middle Ages” makes the argument that literacy in England began increasing starting in 1100, after which all the kings were literate in Latin and French, although there was again a difference between reading and writing.  By 1500, he estimates the literacy among males still did not exceed 10-25%.

In Europe, which had always been much more under the influence of Latin, the first person to break through the Latin barrier was “Dante Alighieri (1265-1321), arguably the greatest medieval poet. Dante wrote in Latin but, more frequently, he used the Tuscan vernacular. His writings encompass a broad range of subjects but he is best known for the lyric poems to his beloved Beatrice and la Divina Commedia (The Divine Comedy). Packed with symbolism and allegory, The Divine Comedy conveys Dante’s judgments on the characters of history as he places them into the many levels of heaven, hell and purgatory. Dante’s ability to create literary masterpieces in Tuscan proved his own arguments against the scholars and writers who, scorning the use of vernacular as vulgar, insisted on Latin as the language of literature.”

http://www.ucalgary.ca/applied_history/tutor/endmiddle/langlit.html