Translation:I know that.
I've always understood わかります as being more polite than しります, particularly in the negative sense. Eg わかりません = I don't know (yet), しりません = I don't know (and don't want to know). I get the sense that しります or しっています have the meaning of 'I know that fact', whereas `わかります or わかっています have the meaning of 'I know and understand' (I know it well; I'm interested in it; it means something to me)
Some more info on usage and etymology of 分かる (わかる): https://en.wiktionary.org/wiki/%E5%88%86%E3%81%8B%E3%82%8B
The verb 分かる（わかる） works differently than other verbs, it is actually related to the word for "breaks down into parts", where the subject of the sentence is the idea that you understand, not you as the person understanding it. When someone says "分かります" it has the meaning "I understand it" but it is expressed like "It breaks down into simple parts (for me)"! So if you added a noun like その言葉（そのことば）into the sentence, it isn't so much "I understand that word" but more like "that word breaks down for me", so you are actually making その言葉 the subject/topic (with は) and not the object (with を).
その言葉は分かります = "That word breaks down into components for me".
Full agree with JamesTWils's question. And the answer of Sir Informasian is not matching that learner's mindset of "do as Master Duolingo asks", which stifles individual thinking-beyond-the-box (which seemingly was exactly the thing that was in demand to correctly answer), you know?