Two things. We also see the model make things that are correct. In fact the mistakes are a minority in comparison to what it got correct. That is in itself an indicator of understanding to a degree.
The other thing is, if a human tried to reproduce that output according to the same prompt, the human would likely not generate something photorealistic and the thing a human comes up with will be flawed, ugly disproportionate wrong and an artistic travesty. Does this mean a human doesn't understand reality? No.
Because the human generates worse output visually than an LLM we cannot say the human doesn't understand reality.
Additionally the majority of the generated media is correct. Therefore it can be said that the LLM understands the majority of the task it was instructed to achieve.
Sora understands the shape of the dog. That is in itself remarkable. I'm sure with enough data sora can understand the world completely and to a far greater degree than us.
I would say it's uncharitable to say sora doesn't understand physics when it gets physics wrong, and that for the things it gets right it's only heuristics.
Sora has zero of this knowledge. This is very much allegory of the cave[1].
If Sora sees a series of images that contain impossible physics, for example MC Escher paintings, what will happen?
A person with no knowledge about mathematical formulas will still be able to recognize impossible MC Escher paintings. With enough data, Sora will be able to generate both impossible and possible physics and know the difference. We can already see in the video that it has a rough understanding of it.
There is no such difference, we evaluate that based on their output. We see these massive model make silly errors that nobody who understands it would make, thus we say the model doesn't understand. We do that for humans as well.
For example, for Sora in the video with the dog in the windos, we see the dog walk straight through the window shutters, so Sora doesn't understand physics or depth. We also see it drawing the dogs shadow on the wall very thin, much smaller than the dog itself, it obviously drew that shadow as if it was cast on the ground and not a wall, it would have been very large shadow on that wall. The shadows from the shutters were normal, because Sora are used to those shadows being on a wall.
Hence we can say Sora doesn't understand physics or shadows, but it has very impressive heuristics about those, the dog accurately places its paws on the platforms etc, and the paws shadows were right. But we know those were just basic heuristics since the dog walked through the shutters and its body cast shadow in the wrong way meaning Sora only handles very common cases and fails as soon as things are in an unexpected envionment.