Just how smart is my dog?
Studies have shown that the average dog possesses the intelligence of a 3-year-old child. This corresponds to an ability to learn basic commands, express themselves (not always clearly), and interpret some emotions of those around them. Some breeds certainly display character traits much more advanced than this. Herding breeds for example appear to understand and function in complex thinking patterns. It's clear that many dogs understand certain words, for example recognizing toys on command. Perhaps talking to your dog isn't quite as crazy as it sounds.
For more information on understanding your dogs world, please read Understanding Your Dog Better.