I used to believe, like you do, that the ability to parse and make decisions based on input was not the same thing as understanding.
Then, I wrote a chess bot for a CS lab. The thing plays better than me, better than it's peers. My partner, who was good at chess (or at least very literate in it) could identify what strategies it was going for. We had a visualization of what moves it was considering, and you could see that it was essentially playing chess by swinging a baseball bat around and seeing what looked nice.
Does the chessbot "understand" chess? It sure seems like it. We like to think humans are special, and have some kind of unique understanding that computers can't, but I think it's only us lying to ourselves.