"We had understood one another."
Translation:Ci eravamo capiti.
When a verb takes "essere" as the helping verb in the past tense, the past participle (capito) has to agree with the subject (we) in gender and number. If it is a group of all females, the answer can be "ci eravamo capite", and if there is a male in the group, it's "ci eravamo capiti".
Good explanation here on "Choosing The Auxiliary Verb in Italian". http://italian.about.com/od/verbs/a/italian-verbs-auxiliary.htm Since "Understand" is an Intransitive verb, it takes Essere, not Avere.
In English, 'understand' is not an intransitive verb (in other words, it can take a direct object, as in "I understand it"). I believe that this is also true in Italian. Therefore, I think it generally uses the auxilliary 'avere', as in "Ho capito". The reason it uses 'essere' here is because in this sentence it is reflexive. If I have misunderstood this, I hope someone more fluent in Italian than I will be kind enough to correct me. :)
In Italian, you can use the verb "capire" transitively to express that you understand information. That information is the direct object of the verb. When it is two people that understand each other, the verb becomes reflexive (capirsi) and therefore intransitive. There is no direct object in the Italian sentence. It's not actually an inconsistency, it's just that Italian and English are two different languages.
It's reflexive, so it takes the reflexive direct object pronoun for us: ci. Here's a good link: http://italian.about.com/library/fare/blfare116a.htm
Have you read the previous comments? Using avevamo vs. eravamo has nothing to do with the English translation: