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I tell her "that is how their parents do it but not how we do it. Every family is different."
Sometimes it ensues tantrums and sometimes it doesn't. To be honest, at that age it is less about "understand" than to be defiant and try to get out of whatever you deem reasonable for "bad" behavior.

My family comes visit often and we visit them for extended periods of time. My nephew (same age as Dd1) is parented very differently. He basically gets away with everything. They never do time outs and we do. My mom can NOT stand to hear a child cry. I have flipped out on more than one occasion when she has let my child out of time out.

@Alivoo01: it's the whole Chinese grandparent thing, I swear! DH has gotten SO mad he has to go outside to regroup. I legit yelled at my mom the last time because DD1 was being SO defiant. Time out isn't everyone's cup of tea for discipline but it works very well for DD1. She needs the time to calm down and regroup.

We use analogy too, with a solid transition at the end if we want to try to avoid questions at the moment: at Aunt Joanie's house you are allowed to jump on the sofa, but at Grandma's you aren't. Different houses have different rules. When you aren't making good choices, Mommy and Daddy do X to help you learn. Other families do Y or Z instead of X. Now, would you like to color or do blocks?

We've kind of run into this at the grocery store! My daughter asks a lot of questions about why parents are yelling at their kids. It's super uncomfortable for me. I usually try to hustle to the next aisle, and then I say something like "it seems like she is feeling angry or frustrated with her son, in our family we try not to talk to each other in that way, but every family is different."