I'm not a vet or a zoologist, but I did manage a dog daycare for 4 years. I heard some pretty insane stories regarding dogs' reactions to death, and if I had to guess, I would say yes, they understand. this would be an evolutionary trait for them just like it would be for us. periodically, in a wolf den, animals would have to die from disease or other causes. if the wolves couldn't learn to recognize the signs associated with death in order to remove it/dispose of it, they would risk attracting scavengers. technically, it's all just food. besides that, the emotional investment is very real. I just heard a story from my former co-workers about the owner of one of our daycare dogs, who had died of a heart attack at home. he had the door cracked open so the dog could go outside (he was an alcoholic and often passed out in this spot), and she survived on snow and toilet water for almost a week before someone found the body. it had been in front of a running space heater the whole time and reeked of death. the dog was starving, and it was absolutely clear that her master was dead, but she never ate him.

Edit: I should add that the reason they found the body is that he and his ex wife used our daycare to share dog custody without seeing each other, and the dog didn't show up at daycare. Sad story.