In the story, the narrator's understanding of how the Terrapin was able to beat the rabbit is developed through a series of conversations with the other animals in the forest. Through these conversations, the narrator is able to piece together the events of the race, and is able to gain a better understanding of the Terrapin's strategy and how it was able to outwit the rabbit. The narrator also uses his own observations and knowledge to gain insight into the race and how the Terrapin was able to win.