I'm doing a bit of a cut-and-paste job here from an old article draft [ed: of mine], but I think it addresses part of your question:

As early as the ninth century the Church was aware of a significant rift between spoken, Vulgar Latin and the official, literary Latin used by the Church. In Gerhard Rohlfs, From Vulgar Latin to Old French: An Introduction to the Study of the Old French Language, trans. Vincent Almazan and Lillian McCarthy (Detroit: Wayne State University Press, 1970), 68, the author notes how the Church “recognized that the care of the spiritual needs of her flock could not be assured by means of a language no longer comprehensible to the great masses of the people.” Thus, in 813 “the assembled synod of Tours decreed that henceforth the exegesis of the holy scriptures by the clergy might be given also in Romance or in the German vernacular.” A sermon delivered at Amiens Cathedral in the second half of the thirteenth century illustrates the exclusivity of Latin, as the overwhelming majority of the text is in Old French; Latin is used sparingly. For the text and a discussion see Stephen Murray, A Gothic Sermon: Making a Contract with the Mother of God, Saint Mary of Amiens (Berkeley: University of California Press, 2004). Of the approximately thirty Latin fragments most are derived from scripture.

More bluntly: by 1300 Latin and French were way beyond the point of mutual intelligibility.

As for the preservation of certain prayers in Latin, the language still had significant sanctity and prestige associated with it, which is likely part of the reason prayers remained Latin. Also consider that many Books of Hours (which can contain both Latin and vernacular prayers) were likely used in the company of a spiritual advisor or guide (or at least someone with more Latin training). So an individual's ability to work with the Latin language could be more fluid than a straightforward "literacy" or "illiteracy".

EDIT: typo