Sidney is speaking solely about poetry in "Defense of Poesy," not literature in general, so I modified your question accordingly. As Professor Sanders of Goucher College explains, Stephen Gosson wrote "School of Abuse" in 1579 to blame and accuse poetry, in particular of the literary arts, of leading English society into immorality. He even took the liberty, without Sidney's permission, to dedicate this Puritan pamphlet to Sidney himself, who had begun writing poetry in 1578 after taking a position in Queen Elizabeth's Court. "The Defense of Poesy" (1579 MS) is believed to be Sidney's retort to Gosson.
Sidney asserts of "poesy," i.e., poetry, that poetry's place in the "noblest" of nations has the role of bringing the light of wisdom,
"in the noblest nations and languages that are known, hath been the first light-giver to ignorance, and first nurse, whose milk by little and little enabled them to feed afterwards of tougher knowledges."
In the above, Sidney defines poetry as the "first light-giver to ignorance." This means that poetry is the first source for dispelling ignorance from the human mind; this can refer to the first in history and the first in the life of any human or society of humans. The greatest importance of this definition is understood in connection with his reference to Aristotle's earlier definition of poetry as "mimesis": the imitation of eternal truths that inspire the mind of the poet and then, when written, instruct the heart of humans. When Sidney's concept of "light-giver to ignorance" is coupled with Aristotle's "mimesis," as Sidney himself couples the concepts, then poetry takes on a vaunted and highly laudable role: poetry opens the way to wisdom and provides insight into eternal truths to be embraced by the human heart.
Sidney also specifies that the end goal of poetry is not "gnosis," i.e., knowledge, but that the end goal is "praxis," i.e., practice: poetry is to provide wisdom and eternal truth by which to live as wisdom and truth are practiced in life. Thus, though Sidney says many more things, the foundational reason that poetry is important is for the light it sheds on ignorance, dispelling it, and for the inspired mimesis of eternal truths, both of which are to be borne into practice in daily living.