I've heard the phrase as meaning "able to analyze veracity of media source". I've never heard it used in a sense like "smart enough to come to the correct interpretation", other than being able to say "Yeah, this is probably propaganda".

I'm somewhere between "death of the author" and "there are no/all valid interpretations". Stories help you explore through eyes that aren't your own and ask questions or raise contradictions you wouldn't otherwise consider, but I don't really think critically analyzing fiction is all that useful.

Dive deep into a story, feel what you feel, let your mind wander. I think classes analyzing themes in the Scarlet Letter or whatever are missing the point of storytelling. It should be organic, and whatever it triggers is valid.