I don't exactly the reason why/I can't explain it to you in technical terms but for English, the sentence structure is wrong. The correct way (which Duo probably showed you) is "I understand that well." I'm not sure (because I'm a native speaker and don't really have the rules memorized), but I think the object needs to come directly after the verb. In all the instances I can think of, having the adverb before the object sounds wrong. Like you wouldn't say "I play fast the guitar," but "I play the guitar fast."
"That" is the object and "well" is the adverb.
The word order is more important in English than in Esperanto.
In English you might say "I understand well that you like flowers", where "that" is not a noun. Here it's more like "ke" to connect two parts of the sentence. You say "that", and then explain what it is that you understand.
When you say "I understand that well" it means you understand whatever you were talking about before. The word "that" is a noun.
Apparently, I did not.
I got it wrong, and I can clearly see how. But I want to understand "why" I translated it as "I understand you well."
I'm not asking anyone here the reason behind my having translated it that way. I'm just musing over it, publicly ... in case someone else makes the same mistake.
I think it has something to do with the little bit of Spanish I've learned ... something to do with "ti". Or, perhaps I'm just typing too fast, before/without thinking. Who knows? [← rhetorical question there]