While this may have been true in medieval Europe, the statement does not hold up for colonial America.
Colonial shop signs and inn signs with pictures were no doubt helpful to people who couldn’t read, but they were not used because of mass illiteracy. The overwhelming majority of white colonists were literate. (The overwhelming majority of blacks were not.) Percentages changed over time and vary from colony to colony or state to state, and the principle way to ascertain literacy is by using a signature as evidence, even though it is certain that some people could write their names but not read or write much else, and others could read but not write their names.
Studies of specific areas give estimates for specific time periods. One study examined legal documents in the second half of the seventeenth century and found that about 60% of the white men and 25% of the white women could read. Another shows that in the Williamsburg area in the middle of the eighteenth century, 94% of white males and 56% of white females could read. In general, the evidence strongly suggests that nearly all property owners and heads of households in Virginia in the late colonial period were literate. In New England, literacy rates were higher than elsewhere because there were more schools and nearly everyone learned to read so that they could read the Bible. There are no reliable estimates of black literacy for the colonial period that I am aware of–please forward anything you might know about! Prior to the Civil War in the mid-nineteenth century, about 10% of blacks could read. After Reconstruction and the efforts of the Freedman’s Bureau, that number had risen to 30%.
Wealth and gender were the strongest predictors of literacy–no surprise there!
Simplifying the studies into one sentence, I would say that around the time of the American Revolution, about two thirds to 90% of white males could read, and about half to two thirds of white women. The pictures-on-the-shop-signs claim is a myth. But putting pictures or symbols on a shop sign was tradition and they certainly are eye-catching, so that probably explains their continued popularity.
To read more on this topic, see http://www.history.org/Foundation/journal/Winter11/literacy.cfm