Consider an expression “he was as happy as a kid in a literal candy store”, meaning as “as happy as a kid in a store literally made from candy”. “Literally” here modifies the nonexistent candy store and turns it into a store made out of candy. There is no contention here about whether the store exists or not, it’s just part of the exaggeration.

Similarly you can say “I’m so dead-tired I might as well be literally dead for all the good I’ll be at work today.” Here the state you’re saying you might as well be in is “literally dead”. Not just “dead-tired”, not just “dead to the world”, but “literally dead”. But it’s still clear that no real death has occurred, just an hypothetical one as part of the exaggeration.

Now let’s exaggerate even more and say we’ve reached that hypothetical state of literal deadness, how would you say it? “Sorry I can’t work I’m literally dead” is one way, but now it’s unclear because this also could mean that you have actually died. How about “sorry I am in the state of being literally dead”? A bit awkward but at least it’s clear you’re not REALLY in the state of literal death, you’re just exaggerating that you’re in that state.

People use “literal” as an intensifier to the exaggeration, by modifying the exaggeration from within, not from outside of it commenting on the truth of it.

If you get this multiple times I’m sorry, I’m on a train and internet is patchy