By a “big” word I am assuming you mean a word that is either lengthy and/or cerebral.

The most important factor in your choice of words is to use the right word, that is, the word that most the appropriately conveys your message. The “size” of the word in and of itself is not a reason to use it.

One factor to consider in choosing the most appropriate word is your targeted audience. The vocabulary you would use in writing a children’s storybook would probably be quite different than the words you would use in a book targeting college students.

To use a big word just because it is a big word when a smaller word would be more appropriate would make your writing seem fake, pompous, and/or ostentatious. I have read authors that do this and it only detracts from their writing.

On the other hand, to use a smaller word when a larger word would better fit your context could make your writing seem simplistic, or worse, not properly or fully convey your intended message.

To sum up, your choice of words should depend basically on two factors: its fitness for the context of your material, and your targeted audience, not the “size” of the word.

To answer your second question, it is absolutely critical that you understand each word you use, otherwise, how could you determine that it is the best word for your writing? I would advise you to never use a word you don’t understand. The better choice would be to use smaller, simpler word that you do understand. To do otherwise is to risk your writing failing entirely to express your point.