My radical view is that we understand language not by generalization to abstract rules as much as by retaining examples and generalizing from them as needed. This is quite within our capacity, given our 100,000 word vocabularies.
We also do reason. I would claim, again in the biological view, that this is done more by "imagined life" than by logic. Humans have superb abilities to remember events and to build detailed mental plans for future activities, e.g., every step of my trip to Copenhagen, from packing my bag to unpacking it at the other end. So we need to build this type of reasoning into our systems.
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