What I mean by App Literacy is how well you understand an application from a user's point of view.
As a developer, you are always building features for those less technical than you are. Those who embrace this can build great software, those who do not will mostly spend their time on the technical fads and baubles that come and go.
The first step to understanding users (it is only the first step) is to understand the system you are working on, understand the words people use for it, understand the real life problems it is solving (or trying to solve), and understand the people that it is trying to help.
Then you can begin.