hiw much do the watchmen understand of what they have found? scene iii act iii

I'm not sure they understand too much. They play fool-type comic characters. They are, however looking for villainy to validate their positions as night watch. They happen to stumble upon Borachio telling Conrad that he earned a thousand ducats from Don John that night because he wooed Margaret in Hero's room and called her Hero. This is enough to arouse their suspicion and fulfill their role of authority.