I’m pretty sure any dog owner will tell you that their dog understands when they are spoken to. If we didn’t think that was true, then we likely wouldn’t spend as much time talking to them, believing they understand us.
 
Research has been done to determine whether or not a dog can understand words. Chaser and Rico  are two prime examples. Both happen to be Border Collies. Studies at Wofford College showed Chaser was able to understand over 1,000 words.
A study at Max Planck Institute showed Rico had a vocabulary of about 200 words.

Can you, a non-scientist, teach your dog, whether Border Collie or Bichon, to understand words? Can your dog actually have a vocabulary? Can you say with confidence, that your dog truly understands when you ask him to do something?
The answer to those questions is yes, you can teach your dog to understand the meaning of words; and you should.        I am a firm believer in being exceptionally clear in the messages we give our dogs. I don’t like repeating words or phrases over and over in the hope my dog will figure out what I want. I try to never use a cue (command/signal) before I’ve taken the time to teach its meaning to my dogs.

I think it’s important to sit down and figure out what your cues are and the definition for each. Post them on the fridge so everyone knows what they are.
Too often I hear people say “Sit”…then repeat…Sit Down!” – well, the cue just changed. Do you want him to sit or to lie down? Confusing? Imagine how your dog feels.

Some of the vocabulary along with definitions I use for my dogs include:

Sit:     park your bum down
Down: lie flat
Touch: touch the palm of my hand with your nose
Paw:   put your paw in my hand
Pony:  give me your head for a ponytail
Bring:  pick up the toy and bring it to me
Get It: run to your toy
Here:  come back in my direction (less urgent than “come”)
Come: get back to me – now
Wait:  no forward motion, backwards or sideways only
Stay:  no movement at all until I say “free”
Drop:  spit out whatever is in your mouth
Leave it: turn away from whatever and look back at me
Find it:   look for something
Stretch: play bow
Over:    roll over
Chill:     lie on your side
Target:  use paw to touch something

This is just a small sample of cues I have for my dogs. Each cue has a specific meaning. I try to use words that don’t sound like each other to decrease the possibility of confusion. I say “stretch” instead of saying “bow” as “bow” sounds too much like “down”.
It's important to take time and figure out what you want each cue to mean and stick to it. If your definitions are sloppy, the behaviour will be sloppy too. There is no right or wrong with definitions. It's up to you to determine the meaning.
For example:
"COME" - What does that mean to you? Run in my general direction? Run straight to me immediately? Take your time but eventually come back to me? Return to me and sit in front? Return and absolutely do not detour? Leave what you are doing and just move away from it but you don't have to come to me?

You determine the definition but it's essential that the expectation is the same every time you use the cue. That is why I have 2 different cues for what is ultimately the same behaviour. When I say "come" it means drop what you are doing and return to me immediately. I use "here" when I want my dog to return to me but he can take his time. It's a more casual cue.
 
If you want your dog to understand the meaning of the words you choose, you must determine their definitions and be teach them. Understand that it will take time and repetition before they will truly understand the meanings. I think most people are just so eager for their dog to respond to cues that they begin using them far too early resulting in spotty success.