Grammar is OK. The difference lies in degree. If you say "I don't understand", there could be many reasons, i.e., the person did not speak clearly or background noise. If you say "I can't understand", then it may mean you lack a sufficient background or cannot accept a situation.

They are both correct. They are very similar. but different. "Don't" means, do not. It means " right now I don't know what it means". "can't" is with a bad attitude, it can mean you are not trying very hard or you believe you will NEVER be able to understand.

I do not (dont) understand = something is not clear (understandable) to me I can not (cant) understand = I am not able to understand. If cant is used, it expresses my inefficiency to understand whereas if dont is used it means I am still trying to to understand.