...Craftsmen, the most iconic of dwarven professions and one that Jake cited literacy as most vital for. Plus, what would the point of signs printed with writing be if their customers were mostly illiterate? Pictures would work much better, no?
Jake did say it, but I don't see why a craftsman would have to read to be able to read well in order to make something with his hands. If you were an artisan of sorts and needed to keep records, as Jake was saying, I think you could get by with a novice or adequate skill in reading. Nothing that would allow you to read a full book, but enough to keep records. Think about it - how detailed would these records be? Orders from various people for statues and the like? Just get them to "make their mark" on a piece of paper or a slate or something. Fill in the rest yourself - Feb Mebzuthkadol, miner, requests statue of gorilla with hanging rings of gold.
The number of people who would be literate enough to read books would be extremely small, given that books were so rare and there was so little use for them for practical men. Books all had to be produced by hand, so they were unspeakably expensive and rare. In addition, some of the very few people who were able to read and write were monks, who wrote in latin. Being a "bibliophile" would be a very rare phenomenon indeed, reserved only to the most intelligent of the wealthy folk.
I also think that pictures would indeed work much better, and did, hence why people once used pictures to advertise things more often than words. I would rather that pictures were used more than writing.
Really, the only people in the entire DF world that I would imagine would need to be able to read well would be traders (and then only a bit), scholars, priests, philosophers (possibly), bookkeepers, mayors (possibly), monarchs and dukes (possibly - not all kings in the middle ages could read) and... that's about it. Maybe doctors. Wizarding types would need to read, certainly. But the vast majority of dwarves would not need to read books, and probably couldn't.
If you can't see what I mean, imagine being an artisan whose knowledge of writing only extends as far as marks on a slate to remind him of orders and stocks and such. Now imagine, as that artisan, trying to read this:
http://myloc.gov/_assets/Exhibitions/Bibles/OtherBibles/Assets/be0007_725.jpgYou'd have a lot of bother, certainly. Even if that was written in whatever his native language was, he'd still struggle.