"He replied that he did not understand it."

Translation: Odpověděl, že on to nechápe.

[qbKDl20a]

he did not understand = že on to nechápal ?

[VladaFu]

To illustrate it explicitly:

He replied: "I do not understand it." -> He replied that he did not understand it.

Odpověděl: "Já to nechápu." -> Odpověděl, že on to nechápe.

[Renardo_11]

Such a question is asked about nearly every past-tense sentence in this lesson.

In Czech (unlike English) reported speech in the present means that the reported action is taking place at the same time as the reporting. VlafaFu's comments to other exercises give references.

[Daria797617]

Odpověděl, že on to nerozumí - is it wrong?

[VladaFu]

It is, you need the dative case with rozumět.

[Daria797617]

Exactly, thank you!