So, "Jeg kan en smule" literally means "I can a bit" right? Will it be weird if I add "tale" in the sentence > "Jeg kan tale en smule"?
"Jeg kan tale en smule" is not weird.
If someone ask you "kan du tale dansk" and you want to answer with a whole sentence the answer could be "jeg kan tale en smule dansk" but in normal speech we drop words that isn't needed because of context. "Jeg kan tale en smule", "jeg kan en smule dansk", "jeg kan en smule" and "en smule" are as all the same reply just with dropped out words and would all be understood as "jeg kan tale en smule dansk"
Is this 'we read a bit' as in a bit of literature or 'a bit' as in 'for a bit'?
It depends on context. I would normaly understand it as a bit of text.
"Vi læser lidt" can also be both but is mostly about time
I think as in 'for a bit' because the topic relates to time, but I'm not sure...
Somebody REALLY needs to be able to explain when to use 'et' and when to use 'en'. It seems that NO ONE in whole written history of the human race has been able explain the exact grammatical rule for the Danes confusing the world with their seemingly random use of et and en.