How does the colinearity of the HOX genes determine the body plan of an organism?
Quoting from some parts of Sean Carroll's book - Endless forms most beautiful, I have tried to provide you with an answer but, remember that this can never suffice for the reading of this great book.

Yes, we do understand how the hox genes' expression is regulated.

From page 126-127


  ......The establishment of these Hox zones and their subsequent action
  in sculpting the different forms of repeated parts is the fundamental
  genetic logic upon which the modular forms of large,biletarian animals
  is built.
  
  The genetic logic relies on genetic switches at two levels. One set of
  switches belongs to the Hox genes themselves. these switches activate
  each Hox gene in different zones that will become different modules of
  the animal. Another set of switches contain signature sequences that
  are recognized by Hox proteins and that control how other genes are
  expressed in different modules.
  
  In both arthropods and vertebrates, the Hox genes are developed in
  zones along the main body axis. The distinct zones of each Hox gene's
  expression domain are governed by genetic switches, and seperate
  switches control Hox gene patterns in different tissues such as the
  ...... Because of the logic of the genetic switches, the cells that
  belong to one module express different Hox proteins or combinations of
  Hox proteins than those in adjacent modules....


Let us take an example of Ubx gene which leads to formation of wings in the 2nd and 3rd thoracic segments of  drosophila. This gene is turned off in the first thoracic segment  but in the second and third segments, it is turned on. This regulation can be achieved because of the genetic switches which in turn can be switched on or off by activators and repressors. These activators and repressors are unevenly distributed in the embryo and so regulation of switches in different parts of the embryo is possible.