I suppose that it's an individual thing. I've never experienced dry mouth from smoking dry tobacco.
A far as
At what point does tobacco become so dry it’s no longer worth smoking?
I'd say when it has dried into mummy dust and/or gone stale. By stale, I mean that the tobacco's original flavors have given way to a musty sweetness of little discernible character other than musty sweetness. This often happens with superannuated vintages.
When tobacco has dried out into mummy dust it loses some of its flavor. Rehydrating may restore some of that flavor, but it won't restore all of it. Almost all commercially released tobacco blends have some level of flavorings added and those don't always revive with rehydration.
I smoke Virginias and their variants, so I prefer my tobacco to be dry, but not dried out, usually just shy of bone dry, dry to the touch when squeezed while still pliant.