Can a full node understand the transactions it downloads from the Bitcoin network? I understand a full node downloads and validates the entire transaction history. Can a full node read and understand these downloaded transactions, or is it just just keeping a copy of encoded information?
I'd appreciate if you could mention your sources' links in this regard.
Can a full node read and understand these downloaded transactions, ...

Yes.

or just it's just keeping a copy of encoded information?

You write &quot;encoded&quot; but the context makes it seem you may have meant &quot;encrypted&quot;
The Bitcoin network does not encrypt any data. None of the data in the blockchain is encrypted. It is all publicly readable information in plain sight.
The answer you are reading right now is encoded. The encoding used is UTF-8.