Not all Preterists are full Preterists. Some are Partial Preterists. So meaning any Preterist, whether full or partial, who applies 'this generation shall not pass', to that of events taking place in the first century, mainly involving 70 AD.
Luke 21:29 And he spake to them a parable; Behold the fig tree, and all the trees;
30 When they now shoot forth, ye see and know of your own selves that summer is now nigh at hand.
31 So likewise ye, when ye see these things come to pass, know ye that the kingdom of God is nigh at hand.
32 Verily I say unto you, This generation shall not pass away, till all be fulfilled.
33 Heaven and earth shall pass away: but my words shall not pass away.
34 And take heed to yourselves, lest at any time your hearts be overcharged with surfeiting, and drunkenness, and cares of this life, and so that day come upon you unawares.
35 For as a snare shall it come on all them that dwell on the face of the whole earth.
36 Watch ye therefore, and pray always, that ye may be accounted worthy to escape all these things that shall come to pass, and to stand before the Son of man.
Let's look at this from Luke's perspective first.
Let's start with verse 35. That verse indicates this---For as a snare shall it come on all them that dwell on the face of the whole earth.
What shall come as a snare? If we look back in verse 34 we are told this---and so that day come upon you unawares.
What day can come upon one unawares? For more clarity, it will be helpful to now consult either the Matthew 24 or Mark 13 account. The former should be sufficient.
Matthew 24:32 Now learn a parable of the fig tree; When his branch is yet tender, and putteth forth leaves, ye know that summer is nigh:
33 So likewise ye, when ye shall see all these things, know that it is near, even at the doors.
34 Verily I say unto you, This generation shall not pass, till all these things be fulfilled.
35 Heaven and earth shall pass away, but my words shall not pass away.
36 But of that day and hour knoweth no man, no, not the angels of heaven, but my Father only.
Obviously verse 36---But of that day and hour---this is referring to the day in question in Luke 21:34 that can come upon one unawares. Which then equals according to Luke 21:35, this----For as a snare shall it come on all them that dwell on the face of the whole earth.
As to this day that can come upon one unawares, Matthew 24:36 says this about it---But of that day and hour knoweth no man, no, not the angels of heaven, but my Father only.
If we look at verse 35 in Matthew 24, and verse 33 in Luke 21, we are told this---Heaven and earth shall pass away, but my words shall not pass away.
What is that connected with? How can it not be connected with the day that can come upon one unawares? And how can it not be connected with this generation passing, once everything has been fulfilled?
First though, let's consider Matthew 24:35, and Luke 21:33, in light of the following in 2 Peter 3.
2 Peter 3:10 But the day of the Lord will come as a thief in the night; in the which the heavens shall pass away with a great noise, and the elements shall melt with fervent heat, the earth also and the works that are therein shall be burned up.
11 Seeing then that all these things shall be dissolved, what manner of persons ought ye to be in all holy conversation and godliness,
12 Looking for and hasting unto the coming of the day of God, wherein the heavens being on fire shall be dissolved, and the elements shall melt with fervent heat?
How can what is recorded in Matthew 24:35 and Luke 21:33, plus what is recorded in 2 Peter 3:10, not be referring to the same events?
Now we are at the verse which causes so much misunderstanding for Preterists in particular, though I fully realize, that from their perspective, they are not misunderstanding anything in the slightest.
Matthew 24:34 says this---This generation shall not pass, till all these things be fulfilled.
Obviously this implies this generation can pass, and will pass, but not until all these things be fulfilled first. Which has to include the fulfilling of every single thing Jesus mentioned in the Discourse, up to this point at least.
If we look at Matthew 24:32 next, we are told this---So likewise ye, when ye shall see all these things, know that it is near, even at the doors.
What is even at the doors? This is where Luke's account in chapter 21 can help shed more light on this.
Luke 21:31 So likewise ye, when ye see these things come to pass, know ye that the kingdom of God is nigh at hand.
Obviously then, according to Luke 21:31, what is even at the doors(Matthew 24:32), is the kingdom of God.
I can't speak for anyone else, but based on what I submitted here, nothing in the verses surrounding 'this generation shall not pass', have anything to do with any events taking place in the first century. It would be silly of Jesus to be applying the events of the first century, such as 70 AD, to that of 'this generation shall not pass', while at the same time be referring to events having to do with the end of this age literally coming to an end at some point. That would clearly make Matthew 24:34 entirely out of context with the verses surrounding that verse.
To answer the title of the thread then. Of course they are not understanding it correctly. They of course obviously think otherwise.