There are many definitions of Digital Literacy, Jisc define Digital Literacy as:
"those capabilities which fit an individual for living, learning and working in a digital society".
Several frameworks have been developed which attempt to describe these capabilities in more detail, sometimes using the term 'digital literacies'. The capabilities can broadly be grouped into the following areas/elements (see also Jisc's digital capabilities: The six elements image below):
Being digitally literate can be an indicator of your adaptability and ability to learn new skills and behaviours. It reflects high standards in behaviour in relation to technology and the law; a digitally literate person is ethical, responsible and culturally aware in their dealings with others.
Digital literacy skills have a direct effect on your employability. Employers are looking for evidence of digital literacy among candidates, those who can function effectively as independent learners are likely to do well in the job market and in their future careers.
From Digital Natives to Digital Wisdom by 
Digital Generations by Jisc's digital capabilities: The six elements
All Aboard: Digital Skills for Higher Education: Brilliant interactive modules on a variety of topics from digital images, to podcasts, screencasts and VLEs - test your skills as you work through each lesson independently.
SCONUL's 7 Pillars of Information Literacy through a Digital Literacy ‘lens’
Open University's Digital and Information Literacy Framework