Understanding of what? What the joke is about? Then no, it has no idea what any of it means. The syntactic structure of jokes? Sure. Feed it 10 thousand jokes that are based on a word found in two otherwise disjoint clusters (pod of whales, pod of TPUs), with a subsequent explanation. It's fair to say it understands that joke format.

If you somehow manage to invent a kind of joke never before seen in the vast training corpus, that alone would be impressive. If PaLM can then explain that joke, I will change my mind about language models, and then probably join the "NNs are magic you guys" crowd, because it wouldn't make any sense.