It seems we will have to tell our workshop tutors (some of the most highly regarded folk musicians in the land) that they are getting it wrong. Steve Shaw says so.

Steve Shaw
If you learned it from a tune book, unless you're experienced, you will not be playing by ear. You will be playing it from the dots you remembered by playing them over and over again so many times that you can do it according to the dots but without them in front of you any more.

Steve, you don't learn tunes from a tune book so you have no idea what it feels like to play tunes you have learnt that way in a session. Believe me (which you probably won't) it is nothing like you say. Folk tune books give you little in the way of how to play the tune. They give you the notes to play. After that it is up to you based on your experience, your inner muse and, most importantly, playing with other people.

Good Soldier Schweik
if you are playing with anybody else, whether you are reading from music, or playing without dots you should be using your ears, or plying by ear, or listening.

Thank you Dick. Someone has finally come up with a meaningful definition of what "playing by ear" means - playing while listening. I like it. I note that it excludes neither learning from notation nor playing from notation.