Hi S.,
My two year old son is not talking much either. Before he turned 2 (I think at about 18 months) I started worrying that he was behind, just as you are. I talked to his doctor about it and we discussed how many words he knew, etc, and he was still considered within the range of normal. At 2, I was still concerned, and since it was his 2 year old well-child, I talked to the doctor about it again. He agreed at that point that he was behind, but said he was not concerned about it since there is such a huge range. He did schedule him for a speech evaluation though. It took awhile to get the appointment, but with some phone calls, etc I was able to get a free evaluation through early intervention. He passed his evaluation fine. He was 85% on his expressive speech, which is considered a mild delay. He only says a few words, many of them are not clear, and he doesn't usually make sentences on his own. He doesn't even babble like your child. But besides expressive speech they also test receptive (which is how much they actually understand). That took awhile because the therapist has to keep going until he messed up and he was starting to get into the 3 year old range with a few of his skills, so he was definitely ahead on that front. Because the average the two things together he averaged out to normal.
With my free evaluation I also got to sit down with the speech therapist the next week to discuss the results and she gave me some ideas on how to work with him. She will re-evaluate him at 3 to make sure he continues to progress, but they weren't worried about him. I also took him to an audiologist, which cost about $75 and took about 10 minutes for them to tell me his hearing was fine as well. :)
Anyway, I am just hoping this will encourage you. If you feel that she is understanding well, then she is probably doing fine. But if you are concerned, check into the early intervention program in your area. Like I said the evaluation was free (though I think you might have to be recommended by your doctor) and if they test over 1/4 of their age behind, they will also receive free speech therapy.
I got him tested because I didn't want to leave a potential problem too long, and even though I could tell that he was understanding me, it was nice for a professional to actually tell me how smart he was and that he is doing fine. He has improved slightly since then.