Understanding a large number of words is far more important than being able to use a lot of words. When speaking, you can often find different ways to say the same thing and still get your point across. However, the greatest challenge as a language learner is in multiway conversations where you can’t interrupt and ask for clarification—you need to understand the exact words being used.
Fortunately, even if we only study by testing ourselves with words presented in the target language, we naturally remember those words in the reverse direction as well, albeit with slightly less proficiency.