What does it mean to "understand" something?

I think we all think we know the answer to that one, but do we really? 

In EFL, students can get 100% on a grammar test, yet cheerfully tell me all about their weekend without once using the past tense. 

Then there's the example of the math question about how many 10-seat buses do we need to get 106 children to school and everyone answers that we need "10 remainder 6" (you want to leave 6 kids at home?)

In other words, students may know the right answers without necessarily understanding them.

In "Understanding by Design" by Wiggins and McTighe, they focus on the need to design assessment by starting with 2 questions:
     1. What should students come away understanding?
     2. What will count as evidence of that understanding? (p.47)

This doesn't mean necessarily eliminating regular tests but it does mean reframing the questions.  Bloom's taxonomy http://ww2.odu.edu/educ/roverbau/Bloom/blooms_taxonomy.htm which everyone seems to give seminars on but few seem to really use could help with this.  So, for example, we might give short quizzes on facts (the lower end of the pyramid) and projects or essay questions to see how they do at the higher ends. 

This isn't as obvious as it sounds because the higher you get up the pyramid, the harder it is to design a good test and of course the less "objective" the grade will be, even with a good rubric, which can be a problem.

How do you get around this problem in your class?