They are also smarter and more reasonable than I think.
That's so true. I think part of it is that they haven't learned active listening yet, so they don't always give any signal that they're paying attention. They don't know that they should.
Our daughter's speech was a little delayed, so we really weren't sure how much she understood. As soon as her articulation improved, though, it was shocking how large her vocabulary was and how much she had been hearing and understanding.