Really it does not understand a thing, sadly. It can barely analyze language and spew out a matching response chain.
To actually understand something, it must be capable of breaking it down into constituent parts, synthesizing a solution and then phrasing the solution correctly while explaining the steps it took.
And that's not even what huge 62B LLM with the notepad chain of thought (like o3, GPT-4.1 or Claude 3.7) can really properly do.
Further, it has to be able to operate on sub-token level. Say, what happens if I run together truncated version of words or sentences? Even a chimpanzee can handle that. (in sign language)
It cannot do true multimodal IO either. You cannot ask it to respond with at least two matching syllables per word and two pictures of syllables per word, in addition to letters. This is a task a 4 year old can do.
Prediction alone is not indicative of understanding. Pasting together answers like lego is also not indicative of understanding. (Afterwards ask it how it felt about the task. And to spot and explain some patterns in a picture of clouds.)