Old English understandan "to comprehend, grasp the idea of, receive from a word or words or from a sign the idea it is intended to convey; to view in a certain way," probably literally "stand in the midst of," from under + standan "to stand" (see stand (v.)).
If this is the meaning, the under is not the usual word meaning "beneath," but from Old English under, from PIE *nter- "between, among" (source also of Sanskrit antar "among, between," Latin inter "between, among," Greek entera "intestines;" see inter-). Related: Understood; understanding.
That is the suggestion in Barnhart, but other sources regard the "among, between, before, in the presence of" sense of Old English prefix and preposition under as other meanings of the same word. "Among" seems to be the sense in many Old English compounds that resemble understand, such as underniman "to receive," undersecan "examine, investigate, scrutinize" (literally "underseek"), underðencan "consider, change one's mind," underginnan "to begin."
It also seems to be the sense still in expressions such as under such circumstances. Perhaps the ultimate sense is "be close to;" compare Greek epistamai "I know how, I know," literally "I stand upon."
Similar formations are found in Old Frisian (understonda), Middle Danish (understande), while other Germanic languages use compounds meaning "stand before" (German verstehen, represented in Old English by forstanden "understand," also "oppose, withstand"). For this concept, most Indo-European languages use figurative extensions of compounds that literally mean "put together," or "separate," or "take, grasp" (see comprehend).
The range of spellings of understand in Middle English (understont, understounde, unþurstonde, onderstonde, hunderstonde, oundyrston, wonderstande, urdenstonden, etc.) perhaps reflects early confusion over the elements of the compound. Old English oferstandan, Middle English overstonden, literally "over-stand" seem to have been used only in literal senses.
By mid-14c. as "to take as meant or implied (though not expressed); imply; infer; assume; take for granted." The intransitive sense of "have the use of the intellectual faculties; be an intelligent and conscious being" also is in late Old English. In Middle English also "reflect, muse, be thoughtful; imagine; be suspicious of; pay attention, take note; strive for; plan, intend; conceive (a child)." Also sometimes literal, "to occupy space at a lower level" (late 14c.) and, figuratively, "to submit." For "to stand under" in a physical sense, Old English had undergestandan.