Dog Language?

I have two dogs. 

The oldest one, Sadie is an English setter, timid yet crazy at the same time in that, you-mess-with-me I'll-bark-at-you, unless-you-have-a-vacuum-or-other-noisy-object kind of way. She's pretty much a big baby.

 

The other one is Maya. She is still a puppy, about a year old and has the attention span of Dory from Finding Nemo. She's a weird little part Pomeranian, part Jack Russell terrier, part Mogwai type of thing. We call her the Tasmanian devil. She's claimed herself leader of the Pack and ruler of the household. 

So while Maya and I were having one of our completely one sided conversations about why we don't chew things up, she looked at me and nodded, like she really understood what I was saying. I doubt it, but it got me to thinking, what does go through their little furry heads? It's always seemed to me that dogs understand commands mostly because of the tone of voice we inflect while saying them. They clearly see when they are being praised or yelled at. But, do they have the ability to actually understand the words I'm saying? My grandparents dog's used to freak out at the word "camp," and Sadie definitely has an affection for the word "Walk" so they must understand what that meant right? 

I'd be interesting in testing this but my dogs are dumb and I'm not sure how I'd do it. 

But, what about communication between each other?

It often seems to me that they understand each other on a level that humans don't. Like the other day while Maya was tied to her leash outside I gave Sadie one of their little bacon treats inside. As soon as Sadie gobbled it up Maya went bezerk wanting to come in immediately. Coincidence? Or Dog psychic ability? OR... did she just hear me open the bag with her super-dog ears?

Hm...