I don't buy the idea that kids don't understand stuff. Kids understand as much as their parents help them understand. I've seen a shitload of misbehaved children during my first job working in a toy store because their parents were letting them misbehave. CONSEQUENCES is the key word. I think a good swift swat on the ass is a fine way of letting a child know the action they performed has a consequence that should prove undesirable if it is performed again. The parents in this video did a poor job of demonstrating to the child that it is NOT OK to harm an animal, it's funny because the cat did what the parents should have. A perfect example of my argument is a friend of mine who is a rather young single father of a boy who is now in kindergarten. This child is probably the best behaved child I have ever encountered, when my friend brings his kid over it is not a burden or a pain in the ass or irritating to me (I don't have, want or generally like kids btw). The reason this kid is cool is because his father is a GOOD parent, he talks to his son intelligently and explains to him the meaning of things and why things work the way they do and if his kid misbehaves in my house or anywhere else there is a swift, firm and acceptable discipline that follows. The kid knows to treat my animals (3 cats) with respect, treat my things with respect and treat me and my fiance with respect. The best part? Since this kid has demonstrated to me that he knows how to behave he gets to play with my AWESOME collection of Star Wars toys because he's earned it. So no I don't believe that kids don't have an understanding of right and wrong, I know I certainly did growing up, I know my friend does as well and because of this his son has learned to understand right and wrong from him.

TL;DR - Kids understand what their parents help them understand.