This is something that was never clear to me when reading this (my absolute favorite) book.
Can rabbits understand what the humans are saying?
They can communicate alright with other animals (mice, seagull, cat, apparently not with a dog, though). What about humans?
Fiver has a dream where he actually talks to a human (the framer from Nuthanger farm) and is told that Hazel is hiding in a hole. In the dream Fiver even can read the sign, although it's clear rabbits can't read human writing, as even the stones representing El-ahrairah is too high of a concept for them.
Also, rabbits seem to use human names of places and people (Watership Down, Nuthanger farm, Lucy), though mostly in the "Stories from Watership Down", the 1996 sequel.
On the other hand, in the non-dream scenes where rabbits interact with humans (at the end of the Nuthanger raid when Hazel is shot and also when Lucy saves Hazel) and there is actual human dialogue, there is absolutely no indication that the rabbits understand what the humans are saying.