How do you know when to take it literally and when not to?

The same way you know that your friends are not to be taken literally when they say the above statements. The same way you can tell the difference between poetry and prose. Historical narrative and a personal letter. It's literature, my man. It's not hard. You use the same literary tools one would use reading any other peace of literature. If you're reading poetry, then you use the literary tools to interpret the poetry. If you're reading historical narrative, then you use the tools of historical narrative to interpret the text.

Context is king.

How do you know when to take it literally and when not to?

The same way you can tell the difference between poetry and prose. Historical narrative and a personal letter. It's literature, my man. It's not hard. You use the same literary tools one would use reading any other peace of literature. If you're reading poetry, then you use the literary tools to interpret the poetry. If you're reading historical narrative, then you use the tools of historical narrative to interpret the text.

Context is king.