The line that demonstrates the use of understatement is "It's pretty bad right now."
Explanation:
An understatement is the description or presentation of something as being less important than what it really is.
The fire is strong enough to destroy a wall. However, the fireman describes its intensity by saying it is "pretty bad". There is, thus, an understatement of the fire's destructiveness. We would expect him to describe it as being "very dangerous", "horrible", but not merely as "pretty bad".
What they are wanting you to do is come up with examples to put there: The kitten was as soft as a blanket. You can probably come up with something better.
