IME just because she 'understands you' does not mean she can properly HEAR you ... children with hearing loss or impairment learn to read lips at a very young age but still cannot 'speak' because they cannot make the sounds WE hear in order, they can still listen to music cause they FEEL the beat and so forth.

This is just what I was going to say.... I am interested to know what the hearing tests come out with. My friend's daughter presented very similarly, in that it SEEMED like she could hear, but in actuality she heard sounds as though she was underwater. Everything was muffled, due to her enlarged adenoids and tonsils, etc. They didn't even really notice until she was about 3, and her 1 year old sister's vocabulary began to surpass her own. She also made sounds, but no clear words. It may be helpful to get her checked by an ear/nose/throat doc to make sure that there are no issues there?
Having said that; my own son was almost 3 before anyone (outside of immediate family) could understand what he was saying. Then, *poof* he started chattering away!! He also required an outpatient surgery to remove his adenoid, later on.