Translation:He does not understand the book that he is reading.
The subject of the relative clause does not have to be the same as the subject of the main sentence in a case like this. However, without context indicating that we may be talking about two different people, I would assume that we have just one subject here. Thus this sentence could also mean "He does not understand the book that she is reading" and that is, in fact, an accepted translation here.
I do not understand either! :) What I mean is that It is not clear to me why the object of the subordinate becomes the subject. I would have expected this to translate He does not understand that he is reading a book
I have read the lesson notes as well, and I have seen that there are two examples, and they appera to be treated differently, but I don't understand the logic behind that.
-bogh phrases are a little complicated at first. The -bogh suffix is placed on the verb of a complete sentence and turns that whole sentence into an adjective describing the head noun. That whole phrase can then be used as a noun in another sentence.
paq laDtaH means, "He reads the book." paq laDtaHbogh means, "the book he reads."
You can then place it in a sentence. paq yajbe' ghaH means, "He does not understand the book." paq laDtaHbogh yajbe' ghaH means, "He does not understand the book he reads."
It's easy to interpret a -bogh phrase that only has one explicit noun. It gets confusing when there are two nouns. Is paq laDbogh loDHom "the boy who reads the book" or "the book which the boy reads"? Notice that in both translations the boy is doing the reading and the book is being read. But is the phrase taking about the boy that is doing the the reading or the book that is being read?
It's possible to leave it ambiguous, but you can also clarify by marking the one that is supposed to be the head noun with -'e': paq laDbogh loDHom'e' can only be "the boy who reads the book".