You’ve indirectly highlighted the biggest issue I have with referring to literacy as “x-grade reading levels”.

There are standards of complexity that are set by grade level.

Here's a resource with a great breakdown

https://www.weareteachers.com/reading-levels/#:~:text=Lexile® Reading Levels&text=The first digit of the,above your child's current score.

Combines these with reading standards for various grades, and the metric makes a lot of sense. To say someone reads at a 5th grade level means they are technically literate but struggle to find true meaning, subtle concepts, and likely have a limited vocabulary.