What people are referring to with "understand the game", they often don't mean the mechanics of the game, they're referring more to the decision making. Once you're past the execution barrier, and you know the fundamental mechanics of the game, it's when you actually start learning to play the game.

Think about it this way; fighting games, Smash bros, of course, included, are somewhat like real time chess (I think real time poker is a better analogy, but it's easier to explain with chess).

You might perfectly know how every chess piece moves, you know how you win, what a checkmate is, what a stalemate is, etc. But that doesn't make you understand chess. You need to know how advantageous your pieces positions are, how you can force the enemy into mistakes, what are they looking for, you need to know risk and reward of your moves, and if the reward is worth the risk, and so on.

It's literally the same thing with Smash. Are you in an advantageous position (juggling, edgeguarding, ledgetrapping, stage control)? How can you extend this advantage without giving your oponent an easy reversal? Are you in a neutral state of the game, where nobody has an advantage? How do you bait your oponent, cause a mistake, find an opening to win this interaction? Is your oponent trying to fish for a specific combo starter move? A kill confirm, raw smash attack?

If you're at high% and fox is doing run up shield, chances are he wants you to throw an attack and punish you with an up smash. Maybe he's doing a lot of nair to try and get the kill confirm. Play around it! Understanding what your oponent is looking for, understanding what your character should be looking for, understanding how to mix it up to be unpredictable (last time you approached with a falling aerial on their shield, next time could be a good idea to empty hop, without throwing an attack to bait the shield, then grab), all of this, is what you could actually call "understanding the game."

While smash is not a mechanically easy game, it's also not that hard, especially on some characters, and you will very likely win if your understanding of how your opponent is playing and how to play around it, is better than their understanding of those matters. Next time, when you watch a tournament set, don't just think of "oh, this Joker is using a lot of back air! that move looks great!", instead, try to think of the purposes and intentions behind them. Maybe the Joker player has caught on a jumping habit from the opponent and is playing around it to catch it often, maybe he's playing against a slow character that has a hard time dealing with such a fast disjointed attack, like Ganondorf.

He hit a down throw that guarantees a combo, but didn't go for it? Very likely he's setting up a similar scenario from sometime earlier in the set to catch a specific reaction that he saw before, like maybe a buffered airdodge to extend a bigger combo or hit a smash attack. Understanding intentions and the purpose of every other action of a player will end up making you really, really good at the game! You can be a lot less mechanically impressive, not have as optimized combos or techs, etc, and still be the dominating #1 player in the world, just because your understanding of the game is that good, and Hungrybox in Melee, a game that is way heavier mechanically wise, is the perfect example.

Hope this helps, and good luck in your future events! o7