Which one is grammatically correct?

I had a much better understanding of how they work.

I had a much better understanding of how they worked.

The correct answer is: I had a much better understanding of how they worked.

Explanation:

The correct answer is the second one, due to the verb tense consistency.

Verb tense consistency refers to keeping the same tense throughout a clause. If you use a past tense in a sentence, you must finish it in the same manner. When you use a certain tense you must be consistent throughout the sentence.

For example:

We watched the movie, and then we went to dinner.