How the language translation works is deliberately ambiguous! Some characters might imagine that everyone is speaking in their native tongue, whereas other characters might recognize that everything they say is being translated into Ryslig's native language. It would be perfectly acceptable for two newbies to argue about whether a sign is in Japanese or English -- it would also be acceptable for them to be startled that they're suddenly reading Ryslig's alphabet. (It resembles the Roman alphabet, but is otherwise unintelligible.)

The important things are:

Characters can understand each other by default
This translation is mediated by the Fog God
Deliberately choosing to speak another language (to avoid being understood) will temporarily block the translation function.

We hope this helps!