I would say it understands as well as Siri, but at 30 feet away and in a normal voice. Hey Siri is good for about 6 or 7 feet at best. If there's a lot of background noise like a dishwasher or dogs barking, other people talking, you have to speak louder. I would say she hears as well as a person with good hearing. I can be 20 feet away, turned away from her, and speaking in a normal voice and she responds. This is in a quiet room. If she is playing loud music, I have to yell her name above the sound to get her attention over the music. Music pauses and I can speak normally. We have to be careful talking about her around here. Every time she hears her name she's looking around to see who's talking. (An area of the lighted ring around the top turns a lighter color which points in the direction of the person who said her name.)
Keep in mind that you also have to use phrasing that she understands. JohnDroid, the people in that commercial are speaking casually but using the phrasing that she understands. I'm still learning some of that. If I say, "Alexa, play playlist ........" she will usually play it. If I say, "Alexa, could you play my playlist called .....,." she will play it. If I say, "Alexa, could you change to my playlist called ..... " she is probably not going to understand. I'm not sure how many extra words I can throw in or the different word orders that she'll respond to yet. But there is more leeway today than yesterday. I would love others who have the Echo to comment on this. Also, can she learn?