Yes, it is possible to understand a language without speaking it. This often happens in when children are brought up bilingually. If children are exposed to two languages, but one is dominant - that is, they hear it a lot more than the other(s), they will tend to use this language. If everyone can understand them when they use the dominant language, they will not see a need to learn to use the non-dominant language. It is only with a lot of experience using the language that you can actually use it.
For example, if a child grows up in English-dominant North America, but they have a grandmother that uses a heritage language, the child may never learn to speak that heritage language. Nevertheless, they will understand it. I've known some Korean-Americans who can understand Korean quite well, but when they come back to Korea, they are (mostly) unable to speak the language.