In some ways I have used the old saying, "learning to read" and "reading to learn" to point out when things really clicked for my DD7. She could spell and identify many 3 letter words at 2.5 but she wasn't reading like others on the board have described. She loved books and stories. At 4 she was still acquiring words in order to read a story smoothly. At 4.5 it all clicked and she could read anything. I define it as actually reading when the process of reading is no longer relevant to them. When it becomes this natural and they begin to accumulate information from what they read using books to satisfy their curosity.
I like Mamaandmore's defintion and think that would fit with us as well. The summer before Kindy my dd just could read. I didn't need to sit with her, she could read aloud with emphasis and appropriate breaks and she could read silently. I think the ability to read silently is what really defined it for us. That and she began to learn things on her own without any intervention from us.