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%C2%AE%20Reading%20Levels&text=The%20first%20digit%20of%20the,above%20your%20child's%20current%20score.

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.