1)The Bible uses parables to instill useful values. It is largely NOT literal. Children and simple adults believe it literally because they lack the capacity to grasp the deeper lessons present. This is okay, because the alternative methods of instilling the same useful values to a wide variety of people have no solid track record.
I have to disagree about your statement that simple adults believe the Bible literally because they lack the capacity to grasp the deeper lessons. I grew up in a literalist "the Bible is the inerrant word of God" church. Sermons and lessons were chocked full of deeper moral lessons from both the Old and New Testaments. Some of the most subtle insights into human nature I've ever heard came out of sermons based on Jesus's parables.
That said, there were doctrines where my church would not bend, eg those beliefs unique to our denomination that really weren't supportable by any reasonable reading of the Bible or were in direct conflict with scientific observation. If you questioned them, you would typically get either a) an unsatisfactory misreading of one or more biblical verses b) a glassy eyed look c) an unsupportable rationalization ("well you know to God, a billion years is like a day") d) or a quick change of subject.
I think that basically what this represents is not that the believers of that church were somehow cognitively inferior, but that they simply were caught in a set of self-reinforcing memes that required them to have mental blind-spots when it came to entertaining certain questions, thoughts, or observations. It was a powerful and compelling force.
It took me years after I figured out that they believed a bunch of unsupportable fantasy before I finally broke away. The draw to believe in the group consensus view was strong enough to keep me trying for years after I had effectively lost faith and begun finding my own truth (of which science figures in prominently).