It's very very good at sounding like it understands stuff. Almost as good as actually understanding stuff in some fields, sure. But it's definitely not the same.
It will confidently analyze and describe a chess position using advanced sounding book techniques, but its all fundamentally flawed, often missing things that are extremely obvious (like, an undefended queen free to take) while trying to sound like its a seasoned expert - that is if it doesn't completely hallucinate moves that are not allowed by the rules of the game.
This is how it works in other fields I am able to analyse. It's very good at sounding like it knows what its doing, speaking at the level of a masters level student or higher, but its actual appraisal of problems is often wrong in a way very different to how humans make mistakes. Another great example is getting it to solve cryptic crosswords from back in the day. It often knows the answer already in its training set, but it hasn't seen anyone write out the reasoning for the answer, so if you ask it to explain, it makes nonsensical leaps (claiming birch rhymes with tyre level nonsense)
A sufficiently good simulation of understanding is functionally equivalent to understanding.
At that point, the question of whether the model really does understand is pointless. We might as well argue about whether humans understand.
If anyone wants to see the chess comprehension breakdown in action, the YouTuber GothamChess occasionally puts out videos where he plays against a new or recently-updated LLM.
Hanging a queen is not evidence of a lack of intelligence - even the very best human grandmasters will occasionally do that. But in pretty much every single video, the LLM loses the plot entirely after barely a couple dozen moves and starts to resurrect already-captured pieces, move pieces to squares they can't get to, etc - all while keeping the same confident "expert" tone.