Cultural literacy is, apparently, one of my favorite topics with which to bore my children. Say the words to them and they will groan, roll their eyes, and say "Yeah, yeah, and your little dog, too, we know." I am a Pollyanna and therefore look upon this as living proof that something I've said to them (ten milion times) over the years has actually been heard and retained.
The dictionary definition (you knew that was coming, didn't you?) is "the ability to converse fluently in the idioms, allusions and informal content which creates and constitutes a dominant culture."
I think part of the appeal lies in the ability to convey a lot with a few words. Think about what went through your head when you read the words "and your little dog, too." Did you see the Wicked Witch of the West? Could you hear her voice? Are you looking over your shoulder to see if she's coming to get you? What other expression could I have used that would have invoked such vibrant imagery, complete with sound effects?
It's also fun. There's a joy to be found just in knowing that you got the allusion. Search for the words cultural literacy online and you'll find quizzes, books, blog entries and, of course, the ubiquitous Wikipedia article. And if you don't have a basic level of cultural literacy in whichever country you find yourself, your ignorance will show every time you say "Who?" I myself am sadly lacking in the areas of film and music. Refer to a famous actor or singer and I will inevitably say "Who?" I'm much better if you name a movie or song, however, and if you refer to a book character, I'm Golden.
This is why story is so important. Stories are a vital part of every culture. Mythology, fables, folktales, Tall Tales, classics, and Bible stories all live together at your library. Our children need to know what it means if someone has the golden touch or if something is a real David and Goliath story, and they should know to watch their backs when someone says "And your little dog, too."