I don't understand yet, it doesn't make sense having this tense if it means the same as the basic past. All the hints point to a "used to" context. "She did not understand my English.", in context would mean that subject of the sentence still does not understand. However, if translated according to the hints, "She used to not understand my English.", would mean that the subject did not understand initially, but has since begun to understand.
Did it mark wrong? I'd also translate it like that. Maybe I even did… Maybe Duolingo translates it like that because of stative verbs. I've seen many times native English speakers using the simple past in situations where I'd normally use the passado imperfeito… It may be that. “I didn't like coffee when I was a child” = “eu não gostava de café quando era criança”.
I think I used the simple past on this one because that was the pattern I had seen with other sentences in this section. I had many answers marked wrong because they did not accept the "used to" context in favor of the simple past.
For English speakers, it may be normal to use the simple past where a native Portuguese speaker would use the imperfect past, but it does not teach the English speakers proper usage of the imperfect past in Portuguese by allowing for a use of simple past in translation. It is not just a matter of learning special words. It is a matter of learning the right way to think about how those word are used in context.
The translation of the Portuguese "imperfeito" depends on context and the type of verb used. Both the "simple past" or the semi-modal "used to" work because "understand" is a stative verb.
Different from the Portuguese "pretérito perfeito", the "simple past" in English describes both repetitive actions and past habits as well as long-term and short-term events. It's the most used tense to reference the past in English.
Do you mean how would "was not understanding my English" be expressed in Portuguese? That's a bit of a trick question for someone who believes "understand" is stative. :-)
I wrote my comment more than two years ago and since then I've learnt (mostly through reading Duolingo discussions) that many native English speakers are happy to use verbs like "understand" in progressive tenses. This item touches on some interesting points about this tendency:
(By the way, as far as I can see, Portuguese doesn't treat verbs considered stative in English in any special way, although I'm hardly an expert.)