Mi compañera confundió el sustantivo con el adjetivo, pero luego entendió la diferencia.

Compañera can mean several things depending on context:

• classmate
• coworker
• female companion / colleague

By itself, mi compañera just means my female companion/colleague/classmate. The exact translation depends on the situation.

Also note:

• compañera = feminine
• compañero = masculine

So the sentence is referring to a woman.

Because mi is the normal possessive adjective used before the noun:

• mi compañera = my classmate/coworker

The form mía is different: it is a possessive pronoun or a stressed possessive form, usually used after a noun or by itself:

• una compañera mía = a classmate/coworker of mine
• Es mía = It’s mine

So in front of the noun, you use mi, not mía.

Because singular mi does not change for gender.

• mi compañero = my male classmate/coworker
• mi compañera = my female classmate/coworker

It only changes for number:

• mi = singular
• mis = plural

So:

• mi compañera
• mis compañeras

Spanish often uses the definite article where English might not.

Here:

• el sustantivo = the noun
• el adjetivo = the adjective
• la diferencia = the difference

The articles are natural because the speaker is referring to specific concepts, especially grammatical categories. In Spanish, when talking about parts of speech in general, using the article is very common:

• El sustantivo es una palabra...
• El adjetivo describe...

So this sounds fully natural.

The pattern is:

• confundir algo/alguien con algo/alguien

It means:

• to confuse X with Y
• to mistake X for Y

So:

• confundió el sustantivo con el adjetivo

means she mixed them up / mistook one for the other.

This is a very common structure:

• Confundí a Ana con su hermana.
  I mistook Ana for her sister.
• No confundas el ser con el estar.
  Don’t confuse ser with estar.

Yes, the order usually matters.

Confundir X con Y normally means to confuse X with Y or to mistake X for Y.

So:

• confundió el sustantivo con el adjetivo

usually suggests that she took the noun for the adjective, or at least that the noun is the item being confused with the adjective.

In real life, though, many speakers use this structure in a broader mixed them up sense, so context is often more important than strict logic.

They are in the preterite (the simple past), because the sentence describes completed actions:

• first she confused them
• then she understood the difference

Forms here:

• confundió = she confused
• entendió = she understood

This tense fits a sequence of finished events.

If you used the imperfect instead:

• confundía
• entendía

it would suggest repeated, ongoing, or background actions, which would not fit this sentence as well.

Because in these forms the stress falls on the final syllable:

• con-fun-dió
• en-ten-dió

The written accent shows the correct stress pattern in the third person singular preterite of many -er and -ir verbs.

Compare:

• entendí = I understood
• entendió = he/she understood

The accent is an important part of the spelling.

Here luego means then, afterwards, or later.

So:

• pero luego entendió la diferencia
  = but then / afterwards she understood the difference

Yes, you could also say después:

• pero después entendió la diferencia

Both are natural.
In this sentence, luego sounds very normal and smooth.

Yes. Both are possible:

• entendió
• comprendió

Both mean understood, but there can be a slight nuance:

• entender is the most common everyday verb
• comprender can sometimes sound a little more formal or slightly deeper, like fully grasp

In this sentence, entendió is the most straightforward and natural choice.

Because the direct objects here are things, not specific people.

Spanish uses the personal a before a specific human direct object:

• Vi a María.
• Confundí a Ana con su hermana.

But here we have:

• el sustantivo
• el adjetivo
• la diferencia

These are not people, so there is no personal a.

It refers to the difference between the noun and the adjective.

Spanish often leaves this implicit when it is obvious from context:

• entendió la diferencia
  = she understood the difference between them

You could make it more explicit and still sound natural:

• entendió la diferencia entre el sustantivo y el adjetivo
• entendió la diferencia entre ambos

But the shorter version in the original sentence is completely normal.

A few useful pronunciation points for Spain Spanish:

• compañera: the ñ sounds like ny in canyon
• confundió: the stress is on the last syllable, -dió
• entendió: same idea, stress on -dió
• diferencia: in most of Spain, the c before i is pronounced like th in thin

So in most of Spain:

• diferencia sounds roughly like dee-feh-REN-thya

Also, in standard Spanish pronunciation:

• b and v are pronounced the same or very similarly
• the h is silent, though there is no h in this sentence

These details help if you are aiming specifically for Spain Spanish.