What's going on here?

I'll start with a simple definition:

lit·er·al   

[lit-er-uhl]  Show IPA

–adjective

1. in accordance with, involving, or being the primary or strict meaning of the word or words; not figurative or metaphorical: the literal meaning of a word.
2. following the words of the original very closely and exactly: a literal translation of Goethe.
3. true to fact; not exaggerated; actual or factual: a literal description of conditions.
4. being actually such, without exaggeration or inaccuracy: the literal extermination of a city.
5. (of persons) tending to construe words in the strict sense or in an unimaginative way; matter-of-fact; prosaic.
6. of or pertaining to the letters of the alphabet.
7. of the nature of letters.
8. expressed by letters.
9. affecting a letter or letters: a literal error.