They understand a LOT. Sometimes I think it is eerie. But it does vary from cat to cat. Sterling, for example is very smart. He likes to play fetch, and sometimes his toy gets thrown where he can't see it. But if you tell him where it is, like "it's over by the stairs" he goes and gets it. Amazing!!
Another thing they know is if they are making a lot of noise while bathing (I call it "slurping") all i have to do is clear my voice and they know that I am talking to them!