What does "good" at Japanese mean?

I've noticed that there are Westerners who will say that they're good at Japanese, but they can't really read it. Which makes me wonder if being "good" at Japanese means that you have to be able to read *and* speak it.

Of course, Japanese is difficult to read, so a lot of Westerners spend their time trying to become fluent. But I think it's weird when I meet someone who's fluent who can barely read it beyond hiragana and katakana.

I wonder what Japanese people think--they talk with Westerners in Japanese, but when they go out to eat, for instance, and the Westerner can't read the menu so well (or at all), does their opinion of them change?

When I was living there, I met a lot of Japanese people who expected foreigners to not speak it, let alone read it, so maybe their expectations are already low.