The correct answer is: I had a much better understanding of how they worked.
Explanation:
The correct answer is the second one, due to the verb tense consistency.
Verb tense consistency refers to keeping the same tense throughout a clause. If you use a past tense in a sentence, you must finish it in the same manner. When you use a certain tense you must be consistent throughout the sentence.
For example:
We <u>watched </u>the movie, and then we <u>went </u>to dinner.
