Translation:How was it understood that he had watched her?
Are you sure the word "could" was suggested? I don't think that is a good translation as there is nothing indicating "could" in the Italian sentence.
That being said, this sentence is impersonal, and in English we talk about the impersonal in various ways, such as "you/one/people", the passive "It is ___" and sometimes "we" although I agree with oktaya that the use of "we" is not appropriate here -it changes the meaning. Duo does not think of all possible translations and learns by people reporting them.
I think a sentence like this could be part of a novel. The difference between "Come si capiva che ..." and "Come capivamo che ..." is very small: the first is more impersonal (possibly followed by an unbiased description); the second is used when the author wants to involve the reader (possibly followed by personal ideas). It is very difficult to explain it in English! "Come si POTEVA capire che ...": you are not just looking and trying to understand, you want to do something in order to understand. My favourite translation: how did one know