Hmm.. yeah, I guess that makes sense.
Why do people talk of 'understanding chess'

Why are these questions brought up year after year by countless people:
"What is love?"
"Why do we hate?"
"Is there life out there?"
"How many licks does it take to get to the center of a Tootsie Pop?"
The answer comes down to a fundamental psychological element:
Curiosity.
It is what has driven humanity towards the creation of fire, steam, and even war. It has flown us through the air and driven us at speeds constantly thought impossible. We have burst from our planet and set forth upon the moon. We have even seen peace. Chess and the questions thereof are no different in that they give us questions that MUST be answered. Challenges that must be overcome.
Therefore, understanding chess is about you and the game. It is about why a super GM can very rarely lose to somebody of lower GM or higher IM status. It is trying to figure out, as Fire stated, the why amongst all the hows and whens.

But knowing and understanding are different things and I am not being philosophical :|
It is still the curiousity that drives those who know towards the clarity of understanding.

Why are these questions brought up year after year by countless people:
"What is love?"
"Why do we hate?"
"Is there life out there?"
"How many licks does it take to get to the center of a Tootsie Pop?"
The answer comes down to a fundamental psychological element:
Curiosity.
It is what has driven humanity towards the creation of fire, steam, and even war. It has flown us through the air and driven us at speeds constantly thought impossible. We have burst from our planet and set forth upon the moon. We have even seen peace. Chess and the questions thereof are no different in that they give us questions that MUST be answered. Challenges that must be overcome.
Therefore, understanding chess is about you and the game. It is about why a super GM can very rarely lose to somebody of lower GM or higher IM status. It is trying to figure out, as Fire stated, the why amongst all the hows and whens.
i don't understand.
let's take an example.
you look at a simple endgame position, after looking at a few variations, you figure out that white wins no matter what black plays even though the position superficially looks even. then you 'understand' it. you could say, white's king is active, or that the b-pawn is unstoppable. this is undeerstanding according to me.
but when people say earnestly that they are trying to understand chess, i am confused. what specifically are they trying to understand.

btw, i think i understand simple endgame positions far better than the initial position which is stale to me. only when the pieces are active do i get a rush.

Influence of pieces I guess. Because engines tell you stuff like "moved from a better position to an inferior position". Could try and get your hands on an algorithm possibly? (Nerd answer)

Math.
Lets say you are taking a math class. You know if you memorize everything that you can pass. But you don't want to just 'pass', you want to UNDERSTAND the material. Therefore you work very hard at understanding WHY this formula works better, or WHY this problem can only be solved this way.
By understanding the math, you are able to solve problems far beyond the current scope of your class. But if you only attempt to memorize everything, sure you will do fine in the class. But the instant you get something you weren't taught, you will stumble and probably fail.
That help?

In the sense of use from the OP "understanding" is, if you will pardon a 1960's word "grokking" chess. A full and intutitive understanding to the point where you are "one" with chess.
There is no spoon.

i guess one thing i don't understand after three years of playing chess is when to exchange a bishop for a knight.

i guess one thing i don't understand after three years of playing chess is when to exchange a bishop for a knight.
Exchange when up in material.
Exchange when it gives you a clear advantage/gives your opponent a clear disadvantage.
Exchange when you have a truly weak Bishop and your opponent a strong Knight.
It all comes down to what the position demands. Don't worry though, you aren't the only one asking this.

Key variables would be position, tempo, influence, material advantage. Can try and figure out their relationship. For example, queen x queen early on can force a king to move, not be able to castle and so lose tempo. Understanding has to revolve around system variables and dynamics! Nerd speak ...

no my predicament is much more serious.
let's say you have some position like when white has played bg5. now that's already one tempo spent on pinning the knight in the opening. the bishop is really doing nothing there except keeping the knight inactive. does it make sense to exchange it unprovoked. what about after h6. Should I retreat or exchange. i guess it depends on the actual position but i just feel 'haunted' by this question. there is nothing else in chess which burns me more than the bg5 move.

You're trying to prevent the knight from moving to the center or protecting a center pawn. You're still cramping the guy's development, tempo, and center influence. Take it with a pinch of salt though, I started playing in March :D

If your opponent pins the Knight and has no real threat, then just let him keep his Bishop with that Pin. Play correctly and he'll have to move that Bishop sooner or later which can potentially cost him time. I would personally exchange the Bishop if my opponent could only castle in the direction of my Bishop (O-O or O-O-O) and there is no way to for him to take back with anything but the pawn in front of his King. It's all positional my friend.

I think this quote from Capablanca is relevant:
"In chess one can lose with age the strength and fullness of one’s vision, sureness in the order of one’s moves, resistance to fatigue, etc., but one never loses one’s judgment, and I imagine I still possess it . ... Precise positional judgment, the overall vision of every maneuver in the interdependence of its cogwheels, is what characterizes a great master. It is not a question of a great master seeing any number of isolated moves or of his knowing how to construct a mate; all that is to be taken for granted. What counts is that he should have ideas, and that these ideas should be accurate. That when he is shown any position he should not beat about the bush but should say without hesitation: “This is won, and the win is secured by maneuvering on this or that wing, like this.”
http://www.chesshistory.com/winter/extra/capablanca11.html

Understanding Chess is like understanding anything else.
Let's use United States History as a comparison. If two Americans in the 11th grade take United States History, and they have different teachers. Student A has Teacher A. Student B has Teacher B.
Student A has to do a class project on a war the US was involved in (Student A chose the Civil War). When student A takes a test, the material is reviewed the day before, and come the day of the test, there are 10 multiple choice questions, 5 short answer questions (one paragraph, explains that you understand the material without having the ability to just "guess" with a 25% chance of actually being right), and 2 essay questions (multiple paragraphs, explains that you understand how what happened applies to general life for them then and us today).
Student B receives a list of 100 questions the day before each test. All 100 are multiple choice. 50 of those 100 will be on your test. All 100 questions are used, but there are 6 test versions to avoid cheating. The types of questions asked are "Who is often associated with the underground railroad?" A) Abraham Lincoln, B) Harriet Tubman, C) Jefferson Davis, D) All Slaves, and "On what day was the Declaration of Independence signed?" A) 7/4/1776 B) 11/11/1918 C) 12/7/1941 D) 10/24/1929 (B is the peace signing of WWI, C is Pearl Harbor, D is the Stock Market Crash).
Both students get an A. Do they both "Understand" history? Uhm...NO! Student A does. Student B just memorized facts because he had a horrible teacher.
Chess is the same way. Just because you know how the pieces move, and just because you've won a game or two, does NOT mean you "Understand" chess. There's a lot more to chess than openings and winning. Do you "Understand" what a hole is? Do you "Understand" positional weaknesses? Do you "Understand" WHY rooks belong behind passed pawns? Can you "Apply" your knowledge and form a legitimate "plan" when you attack? Chess is more than just knowing how the pieces move and memorizing a few opening names just like how History is more than just memorizing a few facts and happening to get an A on the report card!

hey, thrillerfan, thanks for taking the time to type out a great answer. i am sort of now beginning to understand what understanding chess means.
however, understanding what a hole is, why rooks belong behind passed pawns are all specific examples. i guess what they mean is why the openings are the way they are. how did they come to be this way. what was the thought behind the masters of old days etc.. also, what is going to be the future of chess. which openings should be explored further, what are the key points in a particular variation of the najdorf, king's indian etc..
I understand if you are trying to understand a position, but why do top players speak of understanding chess.
Kasparov said 'there are things about chess I still don't understand which keeps me up at night'.
An FM in my local chess circuit also says, 'I am trying to understand chess'.
Korchnoi said 'Chess you don't play, chess you understand.'
What are they understanding? Particular openings, role of pawns, sacrifices? What is meant by understanding chess?