It's more advanced than you think:
They're about as smart as a 2- or 3-year-old child, the age at which most kids begin to initiate conversations and speak in simple sentences. To acquire language, kids use a strategy called "fast mapping" — forming quick, rough hypotheses about the meaning of new words after just one or two exposures. So do dogs. Recently, researchers found that a border collie named Rico was able to infer the names of more than 200 items using this method. Four weeks after the initial exposure, Rico was still able to retrieve the items by name. Another border collie in South Carolina has memorized over 1,000 nouns.