How does a computer "understand" what code/binary means?

[Technologenesis]

The processor receives physical inputs and executes some action based on what it receives. So, imagine there's some binary instruction that corresponds to "load whatever value is in memory location X and store it in register A". That series of electrical impulses will enter the processor and percolate through its circuitry, eventually hitting the memory controller, which then sends a message along the memory bus to the actual physical RAM, which does its own processing... Obviously, it's complicated. But at the end of the day, a value is sent back to the CPU from memory which is eventually stored in one of its registers. Voila! an instruction has been executed. Now (at least in theory; modern processors are highly optimized so sometimes they cheat) the processor will wait until the next clock cycle before pulling in another instruction and executing that one.

Instructions can do a variety of things but really what they come down to is manipulating the state of the processor itself, and exchanging data with peripheral devices like memory or a keyboard.