Legibility
Whether individual letterforms can be told apart from one another at a glance.
In practice
Legibility is whether individual letters can be told apart quickly. It depends on letter shapes, such as open counters and distinct forms for lowercase l, capital I and the number 1, as well as on size and contrast. Signage designers care intensely about it: a highway sign must be legible at speed and from far away, so it uses open, simple letterforms at large sizes.
Often confused with Readability
Legibility is about distinguishing single letters; readability is about how comfortably a whole passage of text can be read.
Try this
Type Il1 O0 rn m in five typefaces at a small size and note which keep every character distinct.