I rekon animals understand quite alot. They pick up on your moods by non verbal and tone of voice. I work with disabled kids and horses, we have a pony who is an absolute S%$# if you're an experienced rider/handler, but he is as quiet as a mouse for children and will do anything they ask of him. He understands his job and what his rider needs. We have another lovely mare who will shift her weight if she feels a rider slipping to keep the rider on. All of the horses are voice trained so halt, walk, trot, canter, whoa, stand, no and good boy/girl are words the literally understand. My black mare comes and gives me cuddles when I'm upset.
Ali, my dog is the smartest dog I have ever met and cutest (Im not biast...ha) She understands lots of words and joins in on the convo at times! She knows whos names belong to which person, for example, we say "wheres george?" and she gets all excited and will find the closest thing with his scent on it (he lives away) If they say "wheres gem?" she runs to my old bedroom 🙂 She can do HEAPS of tricks and also knows how to spell WALK! We've tested her and she doesnt react if we spell W-A-L -L or W-A-R-M or simular words but if we spell or say 'walk' she goes mental! She knows the different words for her toys, ball, bunny, squeaky etc. She loves christmas and gets impatient if she doesnt get to open her pressies first and barks at us, she always knows which pressie is for her! I think she understands us. When we were kids she used to bark at us if my sister and I were fighting, If you hit someone in the house (even playfully) she will come tell you off. Sorry shes just so beautiful I cant stop rambling on!
So yeah, I definatly think animals can understand us 🙂