I have a BA and MA in English Lit, and I can't sincerely answer you. I know several of the standard answers--most of which are derived from and are designed to promote various literary theories and the associated coterie of career minded professors. I left Lit in large part because of those (non-) answers, and did my PhD in Rhetoric instead.
Painting with a very broad brush here, but mainly why people study lit groups into five areas.
Art for art's sake-->new criticism, structuralism, deconstructuralism: those fields that see studying literature of value in itself for understanding how literature works.
Author worship-->few scholars still do this, but these see studying literature as valuable as a way to understand a great writer. A modern version is the "shrink crit" types who use literature to do armchair psychoanalysis of the author (too often using extremely outdated Freudian theory).
Reader worship-->reader response theory, mainly, though some accuse rhetoricians of doing this: these theories mainly look at what readers make of a text as being the meaning/value of that text (sometimes they argue that the author is nothing more than a first reader).
How a text works-->linguistics and literature, mainly. These critics study literature to understand how the artistry shapes and is shaped by the constraints of language.
What it means in context-->there's two separate groups here. One is the social/cultural critics who build out of the class/race/gender studies (Marxist, Feminist, et al). The other are the "New Historicist" critics who study lit to see how it lends insight into it's historical context and how the historical context lends insight into the text.
There's a graph of this, but my ability to do ASCII art is ... not up to the task. Basically, you draw 5 circles, one in the center, the other for at the cardinal points. In the center are the text focused people (art for art's sake). To the left are the author focused types, to the right are the reader focused types. You can draw arrows from the author circle to the text circle and from the text circle to the reader circle, but that leads to a whole 'nother can of worms. Anyhow, above the text circle can either be the linguistics/language one or the history/culture one. The other goes below. (What gets put on top can be telling about the teacher's biases.
And, of course, any literary critic worth their salt will immediately violate any of these groupings if that's what makes the most sense to developing insight into the text/reading experience.
I hope that helps.
This is a response to Eliezer Yudkowsky's The Logical Fallacy of Generalization from Fictional Evidence and Alex Flint's When does an insight count as evidence? as well as komponisto's recent request for science fiction recommendations.
My thesis is that insight forms a category that is distinct from evidence, and that fiction can provide insight, even if it can't provide much evidence. To give some idea of what I mean, I'll list the insights I gained from one particular piece of fiction (published in 1992), which have influenced my life to a large degree:
So what is insight, as opposed to evidence? First of all, notice that logically omniscient Bayesians have no use for insight. They would have known all of the above without having observed anything (assuming they had a reasonable prior). So insight must be related to logical uncertainty, and a feature only of minds that are computationally constrained. I suspect that we won't fully understand the nature of insight until the problem of logical uncertainty is solved, but here are some of my thoughts about it in the mean time:
So a challenge for us is to distinguish true insights from unhelpful distractions in fiction. Eliezer mentioned people who let the Matrix and Terminator dominate their thoughts about the future, and I agree that we have to be careful not to let our minds consider fiction as evidence. But is there also some skill that can be learned, to pick out the insights, and not just to ignore the distractions?
P.S., what insights have you gained from fiction?
P.P.S., I guess I should mention the name of the book for the search engines: A Fire Upon the Deep by Vernor Vinge.